<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN SERIES FUND, INC.
Van Kampen Series Fund, Inc. (the "Company") is an open-end management
investment company. The Company currently consists of the following nineteen
investment portfolios designed to offer a range of investment choices (each, a
"Fund" and collectively, the "Funds"): Van Kampen American Value Fund, Van
Kampen Asian Growth Fund, Van Kampen Emerging Markets Debt Fund, Van Kampen
Emerging Markets Fund, Van Kampen Equity Growth Fund, Van Kampen European Equity
Fund, Van Kampen Focus Equity Fund (formerly known as Van Kampen Aggressive
Equity Fund), Van Kampen Global Equity Allocation Fund, Van Kampen Global Equity
Fund, Van Kampen Global Fixed Income Fund, Van Kampen Growth and Income Fund II,
Van Kampen High Yield & Total Return Fund, Van Kampen International Magnum Fund,
Van Kampen Japanese Equity Fund, Van Kampen Latin American Fund, Van Kampen Mid
Cap Growth Fund, Van Kampen Tax Managed Global Franchise Fund (formerly known as
Van Kampen Global Franchise Fund), Van Kampen Value Fund and Van Kampen
Worldwide High Income Fund. For ease of reference, the words "Van Kampen" which
begin the name of each Fund, are not used hereinafter.
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information should be read in conjunction with each Fund's
prospectus (the "Prospectus") dated as of October 28, 1999 for all Funds except
the Tax Managed Global Franchise Fund dated as of April 3, 2000. This Statement
of Additional Information does not include all the information that a
prospective investor should consider before purchasing shares of a Fund.
Investors should obtain and read the Prospectus of a Fund prior to purchasing
shares of such Fund. A Prospectus for each of the Funds may be obtained without
charge by writing or calling Van Kampen Funds Inc. at 1 Parkview Plaza, Oakbrook
Terrace, Illinois 60181-5555 or (800) 341-2911 (or (800) 421-2833 for the
hearing impaired).
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TABLE OF CONTENTS
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PAGE
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<S> <C>
General Information......................................... 2
Investment Objectives, Policies and Risks................... 7
Investment Restrictions..................................... 25
Directors and Officers...................................... 28
Investment Advisory Agreements.............................. 34
Other Agreements............................................ 37
Distribution and Service.................................... 38
Transfer Agent.............................................. 43
Portfolio Transactions and Brokerage Allocation............. 43
Shareholder Services........................................ 46
Redemption of Shares........................................ 47
Contingent Deferred Sales Charge -- Class A................. 47
Waiver of Class B and Class C Contingent Deferred Sales
Charges.................................................... 48
Taxation.................................................... 49
Performance Information..................................... 52
Other Information........................................... 56
Appendix A -- Description of Securities Ratings............. A-1
Reports of Independent Accountants, Financial Statements and
Notes to Financial Statements.............................. F-1
</TABLE>
Date: April 3, 2000
1
<PAGE>
GENERAL INFORMATION
The Company is a corporation established under the laws of the state of
Maryland by Articles of Incorporation dated August 12, 1992 (the "Articles").
The Articles permit the Board of Directors to create one or more separate
investment portfolios and issue a series of shares for each portfolio. The
Articles also permit the Board of Directors to create multiple classes of shares
for each series. The Company's name at the time of its organization was Morgan
Stanley Series Fund, Inc. The company changed its name to Van Kampen Series
Fund, Inc. in July 1998. Similarly each Fund described herein at the time of its
organization began its name with the words "Morgan Stanley" and each Fund
changed its name to begin with the words "Van Kampen" in July 1998 (except for
the Equity Growth Fund which made this name change in June 1998 and the Global
Franchise Fund which has always had Van Kampen in its name since its
organization in June 1998 and added the words "Tax Managed" to its name in March
2000).
Van Kampen Investment Advisory Corp. ("Advisory Corp.") is the investment
adviser (the "Adviser") and the administrator (the "Administrator") for the
Funds. Morgan Stanley Dean Witter Investment Management Inc. ("MSDWIM") is a
sub-adviser (a "Sub-Adviser") to the Funds, other than Van Kampen Mid Cap Growth
Fund and Van Kampen Value Fund. Miller, Anderson & Sherrard, LLP ("MAS") is a
sub-adviser (a "Sub-Adviser") to Van Kampen Mid Cap Growth Fund and Van Kampen
Value Fund. The Funds are distributed by Van Kampen Funds Inc. (the
"Distributor") and the Funds receive certain shareholder services from Van
Kampen Investor Services Inc. ("Investor Services"). Other service providers for
the Funds are described herein under "Other Agreements" or "Other Information".
Advisory Corp., the Distributor, and Investor Services are wholly owned
subsidiaries of Van Kampen Investments Inc. ("Van Kampen Investments"), which is
an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. ("Morgan
Stanley Dean Witter"). MSDWIM and MAS are wholly owned subsidiaries of Morgan
Stanley Dean Witter. The principal office of the Company, each Fund, the
Adviser, the Distributor and Van Kampen Investments is located at 1 Parkview
Plaza, Oakbrook Terrace, Illinois 60181-5555. The principal office of Investor
Services is located at PO Box 218256, Kansas City, Missouri 64121-8256. The
principal office of MSDWIM is located at 1221 Avenue of the Americas, New York,
New York 10020. The principal office of MAS is located at One Tower Bridge, West
Conshocken, Pennsylvania 19428.
Morgan Stanley Dean Witter is a preeminant global financial services firm
that maintains leading market positions in each of its three primary businesses:
securities, asset management and credit services.
The authorized capitalization of the Company consists of 21,375,000,000
shares of common stock, par value $0.001 per share, which can be divided into
series, such as the Funds, and further subdivided into classes of each series.
Each share represents an equal proportionate interest in the assets of the
series with each other share in such series and no interest in any other series.
No series is subject to the liabilities of any other series.
Each Fund currently offers three classes of shares, designated Class A
Shares, Class B Shares and Class C Shares. Other classes may be established from
time to time in accordance with provisions of the Articles. Each class of shares
of a Fund generally is identical in all respects except that each class bears
certain distribution expenses and has exclusive voting rights with respect to
its distribution fee. Shares of the Company entitle their holders to one vote
per share; however, separate votes are taken by each series on matters affecting
an individual series and separate votes are taken by each class of a series on
matters affecting an individual class of such series. For example, a change in
investment policy for a series would be voted upon by shareholders of only the
series involved and a change in the distribution fee for a class of a series
would be voted upon by shareholders of only the class of such series involved.
Except as otherwise described in the Prospectus or herein, shares do not have
cumulative voting rights, preemptive rights or any conversion, subscription or
exchange rights.
The Company does not contemplate holding regular meetings of shareholders to
elect Directors or otherwise. Each Fund will assist shareholders in
communicating with other shareholders of such Fund to the extent required by the
Investment Company Act of 1940, as amended (the "1940 Act"), or rules or
regulations promulgated by the Securities and Exchange Commission ("SEC").
In the event of liquidation, each of the shares of each Fund is entitled to
its portion of all of such Fund's net assets after all debts and expenses of the
Fund have been paid. Since Class B Shares and Class C Shares have higher
distribution fees and transfer agency costs, the liquidation proceeds to holders
of Class B Shares and Class C Shares are likely to be lower than to holders of
Class A Shares.
Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.
2
<PAGE>
As of March 7, 2000, no person was known by the Company to own beneficially
or to hold of record 5% or more of the outstanding Class A Shares, Class B
Shares or Class C Shares of any Fund, except as follows:
<TABLE>
<CAPTION>
AMOUNT OF PERCENTAGE OF
FUND NAME & ADDRESS OF HOLDER OWNERSHIP CLASS OWNERSHIP
- ---- ------------------------ ---------- -------- -------------
<S> <C> <C> <C> <C>
American Value Fund MLPF&S For the Sole Benefit 5,809,238 A 30.81 %
of its customers
Attn Fund Administration 97B64
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Edward Jones & CO 1,103,505 A 5.85 %
Attn: Mutual Fund
Shareholder Accounting
201 Progress Pkwy
Maryland Hts., MO 63043-3009
MLPF&S For the Sole Benefit 2,220,950 B 13.66 %
of its customers
Attn Fund Administration 97B65
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
MLPF&S For the Sole Benefit 1,762,159 C 20.60 %
of its customers
Attn Fund Administration 97CSB
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Asian Growth Fund Charles Schwab & Co Inc 337,467 A 5.47 %
Exclusive Benefit of its
customers
101 Montgomery Street
San Francisco, CA 94104-4122
MLPF&S For the Sole Benefit 252,021 B 6.48 %
of its customers
Attn Fund Administration 97FK4
4800 Deer Lake Drive E 2nd Floor
Jacksonville, FL 32246-6484
Emerging Markets Fund Charles Schwab & Co Inc 1,518,932 A 21.83 %
Exclusive Benefit of its
customers
101 Montgomery Street
San Francisco, CA 94104-4122
Equity Growth Fund Edward Jones & CO 347,505 A 15.77 %
Attn: Mutual Fund 111,190 C 12.02 %
Shareholder Accounting
201 Progress Pkwy
Maryland Hts., MO 63043-3009
MLPF&S For the Sole Benefit 188,705 B 6.97 %
of its customers
Attn Fund Administration 97238
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Donaldson Lufkin Jenrette 57,078 C 6.17 %
Securities Corp Inc
P.O. Box 2052
Jersey City, NJ 07303-2052
Focus Equity Fund Edward Jones & CO 568,803 A 10.50 %
Attn: Mutual Fund
Shareholder Accounting
201 Progress Pkwy
Maryland Hts., MO 63043-3009
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF PERCENTAGE OF
FUND NAME & ADDRESS OF HOLDER OWNERSHIP CLASS OWNERSHIP
- ---- ------------------------ ---------- -------- -------------
<S> <C> <C> <C> <C>
MLPF&S For the Sole Benefit 99,657 C 5.18 %
of its customers
Attn Fund Administration 97B63
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Global Equity Fund Edward Jones & CO 659,603 A 10.09 %
Attn: Mutual Fund
Shareholder Accounting
201 Progress Pkwy
Maryland Hts., MO 63043-3009
Global Equity Allocation Fund Edward Jones & CO 1,433,905 A 9.10 %
Attn: Mutual Fund
Shareholder Accounting
201 Progress Pkwy
Maryland Hts., MO 63043-3009
Global Fixed Income Fund Charles Schwab & Co Inc 18,585 A 7.96 %
Exclusive Benefit of its
Customers
101 Montgomery Street
San Francisco, CA 94104-4122
First Union Securities, Inc. 17,921 A 7.67 %
A/C 1352-7748
FBO James H. Begay
111 East Kilbourn Avenue
Milwaukee, WI 53202-6611
James Brown Cust 16,334 A 6.99 %
Prof Sh Pl Script Care Inc
DTD 01/01/1997
87 Interstate 10 N Ste 100
Beaumont, TX 77707-2542
Prudential Securities Inc FBO 10,832 B 7.48 %
Marlane Investments L.P.
4002 Marlane Drive
Pensacola, FL 32526-2149
First Union Securities, Inc. 13,190 C 10.23 %
A/C 2755-2685
Geraldine M. Falkiner 1987
111 East Kilbourn Avenue
Milwaukee, WI 53202-6611
Salomon Smith Barney Inc 11,943 C 9.26 %
00117947308
333 West 34th Street -- 3rd Floor
New York, NY 10001-2483
High Yield & Total Return Fund Edward Jones & CO 117,606 A 17.63 %
Attn: Mutual Fund 35,406 C 6.48 %
Shareholder Accounting
201 Progress Pkwy
Maryland Hts., MO 63043-3009
Charles Schwab & Co Inc 77,647 A 11.64 %
Exclusive Benefit of its
Customers
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF PERCENTAGE OF
FUND NAME & ADDRESS OF HOLDER OWNERSHIP CLASS OWNERSHIP
- ---- ------------------------ ---------- -------- -------------
<S> <C> <C> <C> <C>
MLPF&S For the Sole Benefit 59,879 A 8.97 %
of its customers
Attn Fund Administration 97N81
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Donaldson Lufkin Jenrette 38,935 A 5.84 %
Securities Corp Inc
P.O. Box 2052
Jersey City, NJ 07303-2052
MLPF&S For the Sole Benefit 108,656 B 5.72 %
of its customers
Attn Fund Administration 97N82
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
MLPF&S For the Sole Benefit 50,802 C 9.30 %
of its customers
Attn Fund Administration 97N83
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
International Magnum Fund Edward Jones & CO 997,937 A 30.10 %
Attn: Mutual Fund 275,816 B 7.76 %
Shareholder Accounting
201 Progress Pkwy
Maryland Hts., MO 63043-3009
MLPF&S For the Sole Benefit 67,676 C 6.96 %
of its customers
Attn Fund Administration 97N88
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Latin American Fund Charles Schwab & Co Inc 135,438 A 6.20 %
Exclusive Benefit of its
Customers
101 Montgomery Street
San Francisco, CA 94104-4122
MLPF&S For the Sole Benefit 87,051 B 5.76 %
of its customers
Attn Fund Administration 97N90
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
MLPF&S For the Sole Benefit 83,791 C 9.93 %
of its customers
Attn Fund Administration 97N81
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Mid Cap Growth Fund MLPF&S For the Sole Benefit 227,998 A 11.14 %
of its customers 158,273 B 9.30 %
Attn Fund Administration 97238 211,174 C 19.35 %
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Edward Jones & CO 227,016 A 11.10 %
Attn: Mutual Fund
Shareholder Accounting
201 Progress Pkwy
Maryland Hts., MO 63043-3009
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF PERCENTAGE OF
FUND NAME & ADDRESS OF HOLDER OWNERSHIP CLASS OWNERSHIP
- ---- ------------------------ ---------- -------- -------------
<S> <C> <C> <C> <C>
NFSC FEBO # APW-309281 116,189 A 5.67 %
Susan Priester TR
Priester CRT
U/A 8/1/97
119 Cliffwood Lane
Greer, SC 29650-3006
Van Kampen Funds 60,000 C 5.50 %
Distributors Inc.
Attn: Dominick Cogliandro
One Chase Manhatten Plaza
37th Floor
New York, NY 10005-1401
Tax Managed Global Franchise Fund Van Kampen Funds 40,000 A 35.67 %
Distributors Inc. 30,000 B 39.65 %
Attn: Dominick Cogliandro 30,000 C 26.36 %
One Chase Manhattan Plaza
37th Floor
New York, NY 10005-1401
Dean Witter For the Benefit of 23,233 A 20.72 %
Mitchell M. Merin
P.O. Box 250 Church Street
Station
New York, NY 10008-0250
Edward Jones & CO 15,541 A 13.86 %
Attn: Mutual Fund
Shareholder Accounting
201 Progress Pkwy
Maryland Hts., MO 63043-3009
Donaldson Lufkin Jenrette 4,430 B 5.85 %
Securities Corp Inc
P.O. Box 2052
Jersey City, NJ 07303-2052
Kathleen M. Radcliffe TR 4,296 B 5.68 %
Kathleen M. Radcliffe Living
Trust
DTD 10/09/1997
6 Andover Drive
Prospect Heights, IL 60070-1170
Hercules Worldwide Corp 33,706 C 29.62 %
P.O. Box 621 54 Bath Street
St. Helier Jersey Channel Island
JE4 8YD United Kingdom
Warrant Trustees Limited 16,474 C 14.48 %
REF TC 6732
Discretionary Trust
PO Box 218 38/39 The Esplanade
St. Helier Jersey JE4 8SD
United Kingdom
Warrant Trustees Limited 8,454 C 7.43 %
REF TC 6730
Discretionary Trust
PO Box 218 38/39 The Esplanade
St. Helier Jersey JE4 8SD
United Kingdom
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF PERCENTAGE OF
FUND NAME & ADDRESS OF HOLDER OWNERSHIP CLASS OWNERSHIP
- ---- ------------------------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Value Fund Edward Jones & CO 1,368,173 A 21.55 %
Attn: Mutual Fund
Shareholder Accounting
201 Progress Pkwy
Maryland Hts., MO 63043-3009
MLPF&S For the Sole Benefit 917,492 B 10.50 %
of its customers
Attn Fund Administration 97P52
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
MLPF&S For the Sole Benefit 102,508 C 5.74 %
of its customers
Attn Fund Administration 97P53
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Worldwide High Income Fund Charles Schwab & Co Inc 468,108 A 9.94 %
Exclusive Benefit of its
Customers
101 Montgomery Street
San Francisco, CA 94104-4122
Edward Jones & CO 281,495 A 5.98 %
Attn: Mutual Fund
Shareholder Accounting
201 Progress Pkwy
Maryland Hts., MO 63043-3009
</TABLE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The following disclosure supplements the disclosure set forth in the
"Investment Objective(s), Policies and Risks" sections in each Fund's Prospectus
and does not, standing alone, present a complete or accurate explanation of the
matters disclosed. Readers must refer also to this caption in the Fund's
Prospectus for a complete presentation of the matters disclosed below.
BORROWING AND LEVERAGE
To the extent allowed by the Funds' investment restrictions described
herein, certain Funds may engage in borrowing for temporary or emerging
purposes. To the extent allowed by the Funds' investment restrictions described
herein, certain Funds may engage in borrowing for investment purposes, also
known as leverage. Leveraging will magnify declines as well as increases in the
net asset value of a Fund's shares and in the return on a Fund's investments.
The extent to which a Fund may borrow will depend upon the availability of
credit. No assurance can be given that a Fund will be able to borrow on terms
acceptable to the
7
<PAGE>
Fund and the Adviser. Borrowing by a Fund will create the opportunity for
increased net income but, at the same time, will involve special risk
considerations. Borrowing will create interest expenses for a Fund which can
exceed the income from the assets obtained with the proceeds. To the extent the
income derived from securities purchased with funds obtained through borrowing
exceeds the interest and other expenses that a Fund will have to pay in
connection with such borrowing, such Fund's net income will be greater than if
the Fund did not borrow. Conversely, if the income from the assets obtained
through borrowing is not sufficient to cover the cost of borrowing, the net
income of the Fund will be less than if the Fund did not borrow, and therefore
the amount available for distribution to shareholders will be reduced. A Fund's
use of leverage may impair the ability of the Fund to maintain its qualification
for federal income tax purposes as a regulated investment company. The rights of
any lenders to a Fund to receive payments of interest on and repayments of
principal of borrowings will be senior to the rights of such Fund's
shareholders, and the terms of a Fund's borrowings may contain provisions that
limit certain activities of such Fund and could result in precluding the
purchase of securities and instruments that the Fund would otherwise purchase.
CONVERTIBLE SECURITIES, RIGHTS OR WARRANTS AND EQUITY-LINKED SECURITIES
Certain Funds may invest in convertible securities, rights or warrants to
purchase common stocks and other equity-linked securities. A convertible
security is a bond, debenture, note, preferred stock or other security that may
be converted into or exchanged for a prescribed amount of common stock or other
equity security of the same or a different issuer or into cash within a
particular period of time at a specified price or formula. A convertible
security generally entitles the holder to receive interest paid or accrued on
debt securities or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities generally have characteristics similar to both debt and
equity securities. The value of convertible securities tends to decline as
interest rates rise and, because of the conversion feature, tends to vary with
fluctuations in the market value of the underlying equity securities.
Convertible securities ordinarily provide a stream of income with generally
higher yields than those of common stock of the same or similar issuers.
Convertible securities generally rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying equity security although the
market prices of convertible securities may be affected by any such dividend
changes or other changes in the underlying equity securities. Rights and
warrants are instruments giving holders the right, but not the obligation, to
buy shares of a company at a given price during a specified period. Rights are
similar to warrants except that they have a substantially shorter duration.
Rights and warrants may be considered more speculative and less liquid than
certain other types of investments in that they do not entitle a holder to
dividends or voting rights with respect to the underlying securities nor do they
represent any rights in the assets of the issuing company and may lack a
secondary market. Equity-linked securities are instruments whose value is based
upon the value of one or more underlying equity securities, a reference rate or
an index. Equity-linked securities come in many forms and may include features,
among others, such as the following: (i) may be issued by the issuer of the
underlying equity security or by a company other than the one to which the
instrument is linked (usually an investment bank), (ii) may convert into equity
securities, such as common stock, within a stated period from the issue date or
may be redeemed for cash or some combination of cash and the linked security at
a value based upon the value of the underlying equity security within a stated
period from the issue date, (iii) may have various conversion features prior to
maturity at the option of the holder or the issuer or both, (iv) may limit the
appreciation value with caps or collars of the value of underlying equity
security and (v) may have fixed, variable or no interest payments during the
life of the security which reflect the actual or a structured return relative to
the underlying dividends of the linked equity security. Investments in
equity-linked securities may subject the Fund to additional risks not ordinarily
associated with investments in other equity securities. Because equity-linked
securities are sometimes issued by a third party other than the issuer of the
linked security, the Fund is subject to risks if the underlying stock
underperforms and if the issuer defaults on the payment of the dividend or the
common stock at maturity. In addition, the trading market for particular
equity-linked securities may be less liquid, making it difficult for the Fund to
dispose of a particular security when necessary and reduced liquidity in the
secondary market for any such securities may make it more difficult to obtain
market quotations for valuing the Fund's portfolio.
DEPOSITARY RECEIPTS
Certain Funds may invest in American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") and other
depositary receipts, to the extent that such depositary receipts become
available. ADRs are securities, typically issued by a U.S. financial institution
(a "depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer (the "underlying issuer") and deposited
with the depositary. ADRs include American Depositary Shares and New York Shares
and may be "sponsored" or "unsponsored." Sponsored ADRs are established jointly
by a depositary and the underlying issuer, whereas unsponsored ADRs may be
established by a depositary without participation by the underlying issuer.
GDRs, EDRs and other types of depositary receipts are typically issued by
foreign depositaries, although they may also be issued by U.S. depositaries, and
evidence ownership interests in a security or pool of securities issued by
either a foreign or a U.S. corporation.
Holders of unsponsored depositary receipts generally bear all the costs
associated with establishing the unsponsored depositary receipt. The depositary
of an unsponsored depositary receipt is under no obligation to distribute
shareholder communications received from the underlying issuer or to pass
through to the holders of the unsponsored depositary receipt
8
<PAGE>
voting rights with respect to the deposited securities or pool of securities.
Depositary receipts are not necessarily denominated in the same currency as the
underlying securities to which they may be connected. Generally, depositary
receipts in registered form are designed for use in the U.S. securities market
and depositary receipts in bearer form are designed for use in securities
markets outside the United States. For purposes of the Funds' investment
policies, a Fund's investments in depositary receipts will be deemed to be
investments in the underlying securities.
EURODOLLAR AND YANKEE OBLIGATIONS
Eurodollar bank obligations are dollar-denominated certificates of deposit
and time deposits issued outside the U.S. capital markets by foreign branches of
banks and by foreign banks. Yankee bank obligations are dollar-denominated
obligations issued in the U.S. capital markets by foreign banks.
Eurodollar and Yankee obligations are subject to the same risks that pertain
to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a limited extent, Yankee) obligations are
subject to certain sovereign risks. One such risk is the possibility that a
sovereign country might prevent capital, in the form of dollars, from flowing
across its borders. Other risks include: adverse political and economic
developments; the extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes, and the
expropriation or nationalization of foreign issuers.
FOREIGN INVESTING
Certain Funds may or will invest in securities of foreign issuers. Such
securities may be denominated in U.S. dollars and in currencies other than U.S.
dollars. The percentage of assets invested in securities of a particular country
or denominated in a particular currency will vary in accordance with the
Adviser's assessment of the relative yield, appreciation potential and the
relationship of a country's currency to the U.S. dollar, which is based upon
such factors as fundamental economic strength, credit quality and interest rate
trends. Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign currency exchange rates, political, economic or legal
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations (including currency blockage), withholding taxes on dividend or
interest payments or capital transactions or other restrictions, higher
transaction costs (including higher brokerage, custodial and settlement costs
and currency translation costs) and possible difficulty in enforcing contractual
obligations or taking judicial action. Also, foreign securities may not be as
liquid and may be more volatile than comparable domestic securities.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting, financial reporting and
disclosure requirements than domestic issuers. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., a Fund may experience settlement difficulties
or delays not usually encountered in the U.S.
Delays in making trades in foreign securities relating to volume
constraints, limitations or restrictions, clearance or settlement procedures, or
otherwise could impact yields and result in temporary periods when assets are
not fully invested or attractive investment opportunities are foregone.
In addition to the increased risks of investing in foreign issuers, there
are often increased transactions costs associated with investing in foreign
securities including the costs incurred in connection with converting
currencies, higher foreign brokerage or dealer costs, and higher settlement
costs or custodial costs.
Ratings of a non-U.S. debt instrument, to the extent that those ratings are
undertaken, are related to evaluations of the country in which the issuer of the
instrument is located. Ratings generally take into account the currency in which
a non-U.S. debt instrument is denominated. Instruments issued by a foreign
government in other than the local currency, for example, typically have a lower
rating than local currency instruments due to the existence of an additional
risk that the government will be unable to obtain the required foreign currency
to service its foreign currency-denominated debt. In general, the ratings of
debt securities or obligations issued by a non-U.S. public or private entity
will not be higher than the rating of the currency or the foreign currency debt
of the central government of the country in which the issuer is located,
regardless of the intrinsic creditworthiness of the issuer.
The governments of some countries have been engaged in programs of selling
part or all of their stakes in government owned or controlled enterprises
("privatization"). The Adviser believes that privatization may offer investors
opportunities for significant capital appreciation and intends to invest assets
of the Fund in privatization in appropriate circumstances. In certain countries,
the ability of foreign entities, such as the Fund, to participate in
privatization may be limited by local law, or the terms on which the Fund may be
permitted to participate may be less advantageous than those for local
investors. There can be no assurance that governments will continue to sell
companies currently owned or controlled by them or that any privatization
programs in which the Fund participates will be successful.
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FOREIGN CURRENCY EXCHANGE RISKS. To the extent a Fund invests in securities
denominated or quoted in currencies other than the U.S. dollar, such Fund will
be affected by changes in foreign currency exchange rates (and exchange control
regulations) which affect the value of investments in the Fund and the accrued
income and unrealized appreciation or depreciation of the investments. Changes
in foreign currency exchange ratios relative to the U.S. dollar will affect the
U.S. dollar value of the Fund's assets denominated in that currency and the
Fund's yield on such assets as well as any temporary uninvested reserves in bank
deposits in foreign currencies. In addition, the Fund will incur costs in
connection with conversions between various currencies. The Funds do not intend
to invest in any security in a country where the currency is not freely
convertible to U.S. dollars, unless the Fund has obtained the necessary
governmental licensing to convert such currency or other appropriately licensed
or sanctioned contractual guarantee to protect such investment against loss of
that currency's external value, or the Fund has a reasonable expectation at the
time the investment is made that such governmental licensing or other
appropriately licensed or sanctioned guarantee would be obtained or that the
currency in which the security is quoted would be freely convertible at the time
of any proposed sale of the security by the Fund.
A Fund's foreign currency exchange transactions may be conducted on a spot
basis (that is, cash basis) at the spot rate for purchasing or selling currency
prevailing in the foreign currency exchange market. A Fund also may enter into
contracts with banks, brokers or dealers to purchase or sell securities or
foreign currencies at a future date ("forward contracts"). A foreign currency
forward contract is a negotiated agreement between the contracting parties to
exchange a specified amount of currency at a specified future time at a
specified rate. The rate can be higher or lower than the spot rate between the
currencies that are the subject of the contract. These contracts are traded in
the interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for such
trades.
A Fund may attempt to protect against adverse changes in the value of the
U.S. dollar in relation to a foreign currency by entering into a forward
contract for the purchase or sale of the amount of foreign currency invested or
to be invested, or by buying or selling a foreign currency option or futures
contract for such amount. Such strategies may be employed before the Fund
purchases a foreign security traded in the currency which the Fund anticipates
acquiring or between the date the foreign security is purchased or sold and the
date on which payment therefor is made or received. Seeking to protect against a
change in the value of a foreign currency in the foregoing manner does not
eliminate fluctuations in the prices of portfolio securities or prevent losses
if the prices of such securities decline. Furthermore, such transactions reduce
or preclude the opportunity for gain if the value of the currency should move in
the direction opposite to the position taken. Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than if it had not
entered into such contracts. The Funds generally will not enter into a forward
contract with a term of greater than one year. At the maturity of a forward
contract, a Fund may either accept or make delivery of the currency specified in
the contract or, prior to maturity, enter into a closing purchase transaction
involving the purchase or sale of an offsetting contract. Closing purchase
transactions with respect to forward contracts are usually effected with the
currency trader who is a party to the original forward contract. A Fund will
only enter into such a forward contract if it is expected that there will be a
liquid market in which to close out such contract. There can, however, be no
assurance that such a liquid market will exist in which to close a forward
contract, in which case the Fund may suffer a loss.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for a Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that such Fund is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency.
If a Fund engages in an offsetting transaction, such Fund will incur a gain
or a loss to the extent that there has been movement in forward contract prices.
Should forward prices decline during the period between a Fund entering into a
forward contract for the sale of a foreign currency and the date it enters into
an offsetting contract for the purchase of the foreign currency, such Fund will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, such Fund would suffer a loss to the extent that the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The Funds are not required to enter into such transactions with regard to
their foreign currency-denominated securities. It also should be realized that
this method of protecting the value of portfolio securities against a decline in
the value of a currency does not eliminate fluctuations in the underlying prices
of the securities. It simply establishes a rate of exchange which one can
achieve at some future point in time. Additionally, although such contracts tend
to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which might
result should the value of such currency increase.
In addition, Funds may cross-hedge currencies by entering into a transaction
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which a portfolio has or expects to have
portfolio exposure. These Funds may also engage in proxy hedging, which is
defined as entering into positions in one currency to hedge investments
denominated in another currency, where two currencies are economically linked. A
Fund's entry into forward contracts, as well as any use of proxy or cross
hedging techniques, will generally require the Fund to hold liquid securities or
cash equal to the Fund's obligations in a segregated account throughout the
duration of the contract. Funds may combine forward contracts with investments
in securities denominated in other currencies in order to achieve desired
security and currency exposures. Such
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combinations are generally referred to as synthetic securities. For example, in
lieu of purchasing a foreign bond, a Fund may purchase a U.S. dollar-denominated
security and at the same time enter into a forward contract to exchange U.S.
dollars for the contract's underlying currency at a future date. By matching the
amount of U.S. dollars to be exchanged with the anticipated value of the U.S.
dollar-denominated security, the Fund may be able to lock in the foreign
currency value of the security and adopt a synthetic position reflecting the
credit quality of the U.S. dollar-denominated security.
To the extent required by the rules and regulations of the Securities and
Exchange Commission ("SEC"), the Fund will earmark or place cash or other liquid
assets into a segregated account in an amount equal to the value of such Fund's
total assets committed to the consummation of forward foreign currency exchange
contracts. If the value of the securities placed in the segregated account
declines, additional cash or liquid assets will be placed in the account on a
daily basis so that the value of the account will be at least equal to the
amount of such Fund's commitments with respect to such contracts. See also
"Strategic Transactions".
FOREIGN CURRENCY EXCHANGE-RELATED SECURITIES. Foreign currency warrants are
warrants which entitle the holder to receive from their issuer an amount of cash
(generally, for warrants issued in the United States, in U.S. dollars) which is
calculated pursuant to a predetermined formula and based on the exchange rate
between a specified foreign currency and the U.S. dollar as of the exercise date
of the warrant. Foreign currency warrants generally are exercisable upon their
issuance and expire as of a specified date and time. Foreign currency warrants
have been issued in connection with U.S. dollar-denominated debt offerings by
major corporate issuers in an attempt to reduce the foreign currency exchange
risk which, from the point of view of prospective purchasers of the securities,
is inherent in the international fixed-income marketplace. Foreign currency
warrants may attempt to reduce the foreign exchange risk assumed by purchasers
of a security by, for example, providing for a supplemental payment in the event
that the U.S. dollar depreciates against the value of a major foreign currency
such as the Japanese Yen or German Deutschmark. The formula used to determine
the amount payable upon exercise of a foreign currency warrant may make the
warrant worthless unless the applicable foreign currency exchange rate moves in
a particular direction (e.g., unless the U.S. dollar appreciates or depreciates
against the particular foreign currency to which the warrant is linked or
indexed). Foreign currency warrants are severable from the debt obligations with
which they may be offered, and may be listed on exchanges. Foreign currency
warrants may be exercisable only in certain minimum amounts, and an investor
wishing to exercise warrants who possesses less than the minimum number required
for exercise may be required either to sell the warrants or to purchase
additional warrants, thereby incurring additional transaction costs. In the case
of any exercise of warrants, there may be a time delay between the time a holder
of warrants gives instructions to exercise and the time the exchange rate
relating to exercise is determined, during which time the exchange rate could
change significantly, thereby affecting both the market and cash settlement
values of the warrants being exercised. The expiration date of the warrants may
be accelerated if the warrants should be delisted from an exchange or if their
trading should be suspended permanently, which would result in the loss of any
remaining "time value" of the warrants (i.e., the difference between the current
market value and the exercise value of the warrants), and, in the case where the
warrants were "out-of-the-money," in a total loss of the purchase price of the
warrants. Warrants are generally unsecured obligations of their issuers and are
not standardized foreign currency options issued by the Options Clearing
Corporation ("OCC"). Unlike foreign currency options issued by the OCC, the
terms of foreign exchange warrants generally will not be amended in the event of
governmental or regulatory actions affecting exchange rates or in the event of
the imposition of other regulatory controls affecting the international currency
markets. The initial public offering price of foreign currency warrants is
generally considerably in excess of the price that a commercial user of foreign
currencies might pay in the interbank market for a comparable option involving
significantly larger amounts of foreign currencies. Foreign currency warrants
are subject to complex political or economic factors.
Principal exchange rate linked securities are debt obligations the principal
on which is payable at maturity in an amount that may vary based on the exchange
rate between the U.S. dollar and a particular foreign currency at or about that
time. The return on "standard" principal exchange rate linked securities is
enhanced if the foreign currency to which the security is linked appreciates
against the U.S. dollar, and is adversely affected by increases in the foreign
exchange value of the U.S. dollar; "reverse" principal exchange rate linked
securities are like the "standard" securities, except that their return is
enhanced by increases in the value of the U.S. dollar and adversely impacted by
increases in the value of foreign currency. Interest payments on the securities
are generally made in U.S. dollars at rates that reflect the degree of foreign
currency risk assumed or given up by the purchaser of the notes (i.e., at
relatively higher interest rates if the purchaser has assumed some of the
foreign exchange risk, or relatively lower interest rates if the issuer has
assumed some of the foreign exchange risk, based on the expectations of the
current market). Principal exchange rate linked securities may in limited cases
be subject to acceleration of maturity (generally, not without the consent of
the holders of the securities), which may have an adverse impact on the value of
the principal payment to be made at maturity.
Performance indexed paper is U.S. dollar-denominated commercial paper the
yield of which is linked to certain foreign exchange rate movements. The yield
to the investor on performance indexed paper is between the U.S. dollar and a
designated currency as of or about that time (generally, the index maturity two
days prior to maturity). The yield to the investor will be within a range
stipulated at the time of purchase of the obligation, generally with a
guaranteed minimum rate of return that is
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below, and a potential maximum rate of return that is above, market yields on
U.S. dollar-denominated commercial paper, with both the minimum and maximum
rates of return on the investment corresponding to the minimum and maximum
values of the spot exchange rate two business days prior to maturity.
INVESTING IN EMERGING MARKET COUNTRIES. The risks of foreign investment are
heightened when the issuer is from an emerging market country. The extent of
economic development, political stability and market depth of such countries
varies widely and investments in the securities of issuers in such countries
typically involve greater potential gain or loss than investments in securities
of issuers in more developed countries. Emerging market countries tend to have
economic structures that are less diverse and mature and political systems that
are less stable than developed markets. Emerging market countries may be more
likely to experience political turmoil or rapid changes in economic conditions
than more developed markets and the financial condition of issuers in emerging
market countries may be more precarious than in other countries. Certain
countries depend to a larger degree upon international trade or development
assistance and, therefore, are vulnerable to changes in trade or assistance
which, in turn, may be affected by a variety of factors. A Fund may be
particularly sensitive to changes in the economies of certain countries
resulting from any reversal of economic liberalization, political unrest or the
imposition of sanctions by the U.S. or other countries.
A Fund's purchase and sale of portfolio securities in emerging market
countries may be constrained by limitations as to daily changes in the prices of
listed securities, periodic or sporadic trading or settlement or limitations on
aggregate holdings by foreign investors. Such limitations may be computed based
on the aggregate trading volume by or holdings of such Fund, the Fund's
investment adviser, its affiliates or their respective clients or other service
providers. The Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached. Foreign
investment in the securities markets of certain emerging market countries is
restricted or controlled to varying degrees which may limit investment in such
countries or increase the administrative costs of such investments. For example,
certain countries may require governmental approval prior to investments by
foreign persons or limit investment by foreign persons to only a specified
percentage of an issuer's outstanding securities or a specific class of
securities which may have less advantageous terms (including price) than
securities of the issuer available for purchase by nationals. In addition,
certain countries may restrict or prohibit investment opportunities in issuers
or industries deemed important to national interests. Such restrictions may
affect the market price, liquidity and rights of securities that may be
purchased by the Fund. The repatriation of both investment income and capital
from certain emerging market countries is subject to restrictions such as the
need for governmental consents. Due to restrictions on direct investment in
securities in certain countries, it is anticipated that the Fund may invest in
such countries through other investment funds in such countries.
Many emerging market countries have experienced currency devaluations and
substantial (and, in some cases, extremely high) rates of inflation, which have
had a negative effect on the economies and securities markets of such countries.
Economies in emerging market countries generally are dependent heavily upon
commodity prices and international trade and, accordingly, have been and may
continue to be affected adversely by the economies of their trading partners,
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures or negotiated by the countries with
which they trade.
Many emerging market countries are subject to a substantial degree of
economic, political and social instability. Governments of some emerging
countries are authoritarian in nature or have been installed or removed as a
result of military coups, while governments in other emerging market countries
have periodically used force to suppress civil dissent. Disparities of wealth,
the pace and success of political reforms, and ethnic, religious and racial
disaffection, among other factors, have also led to social unrest, violence
and/or labor unrest in some emerging markets countries. Unanticipated political
or social developments may result in sudden and significant investment losses.
Settlement procedures in emerging market countries are frequently less
developed and reliable than those in developed markets. In addition, significant
delays are common in certain markets in registering the transfer of securities.
Settlement or registration problems may make it more difficult for a Fund to
value its portfolio securities and could cause such Fund to miss attractive
investment opportunities, to have a portion of its assets uninvested or to incur
losses due to the failure of a counterparty to pay for securities the Fund has
delivered or the Fund's inability to complete its contractual obligations. The
creditworthiness of the local securities firms used by the Fund in emerging
market countries may not be as sound as the creditworthiness of firms used in
more developed countries. As a result, the Fund may be subject to a greater risk
of loss if a securities firm defaults in the performance of its
responsibilities.
The small size and inexperience of the securities markets in certain
emerging market countries and the limited volume of trading in securities in
those countries may make a Fund's investments in such countries less liquid and
more volatile than investments in countries with more developed securities
markets. A Fund's investments in emerging market countries are subject to the
risk that the liquidity of a particular investment, or investments generally, in
such countries will shrink or disappear suddenly and without warning as a result
of adverse economic, market or political conditions or adverse investor
perceptions, whether or not accurate. Because of the lack of sufficient market
liquidity, the Fund may incur losses because it will be required to effect sales
at a disadvantageous time and only then at a substantial drop in price.
Investments in emerging market countries may be more difficult to price
precisely because of the characteristics discussed above and lower trading
volumes.
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A Fund's use of foreign currency management techniques in emerging market
countries may be limited. Due to the limited market for these instruments in
emerging market countries, the Funds' investment adviser does not currently
anticipate that a significant portion of the Funds' currency exposure in
emerging market countries, if any, will be covered by such instruments.
Investments in emerging market country government debt securities involve
special risks. Certain emerging market countries have historically experienced,
and may continue to experience, high rates of inflation, high interest rates,
exchange rate fluctuations, large amounts of external debt, balance of payments
and trade difficulties and extreme poverty and unemployment. The issuer or
governmental authority that controls the repayment of an emerging market
country's debt may not be able or willing to repay the principal and/or interest
when due in accordance with the terms of such debt. As a result of the
foregoing, a government obligor may default on its obligations. If such an event
occurs, a Fund may have limited legal recourse against the issuer and/or
guarantor. Remedies must, in some cases, be pursued in the courts of the
defaulting party itself, and the ability of the holder of foreign government
debt securities to obtain recourse may be subject to the political climate in
the relevant country. In addition, no assurance can be given that the holders of
commercial bank debt will not contest payments to the holders of other foreign
government debt obligations in the event of default under their commercial bank
loan agreements.
Debt securities of corporate issuers in emerging market countries may
include debt securities or obligations issued (i) by banks located in emerging
market countries or by branches of emerging market country banks located outside
the country or (ii) by companies organized under the laws of an emerging market
country. Determinations as to eligibility will be made by the Adviser based on
publicly available information and inquiries made to the issuer.
EUROPEAN INVESTING. In recent years there have been two key issues
influencing the investment environment and economic conditions of Europe: the
creation of the single market and the emergence of Eastern European economies.
Both of these factors have helped European companies by opening up new markets
for growth.
In connection with efforts to create a single market, eleven of the fifteen
member countries of the European Union established fixed conversion rates
between their existing sovereign currencies and a new common currency, the euro,
effective January 1, 1999. The introduction of the euro is expected to reshape
financial markets, banking systems and monetary policies in Europe and other
parts of the world. The participating countries will issue sovereign debt
exclusively in the euro and will redenominate outstanding sovereign debt.
Financial transactions and market information, including share quotations and
company accounts, in participating countries will be denominated in euros.
Monetary policy for participating countries will be uniformly managed by a new
central bank, the European Central Bank (ECB).
The transition to the euro may change the economic environment and behavior
of investors, particularly in European markets. For example, the process of
implementing the euro may adversely affect financial markets world-wide and may
result in changes in the relative strength and value of the U.S. dollar or other
major currencies, as well as possible adverse tax consequences. The transition
to the euro is likely to have a significant impact on fiscal and monetary policy
in the participating countries and may produce unpredictable effects on trade
and commerce generally. These resulting uncertainties could create increased
volatility in financial markets world-wide.
Governments across Europe have also initiated major privatization programs
shifting a greater share of economic activity into the more efficient private
sector. Private companies have sought quotation, following the need to compete
in the capital markets, as much as in the market place for their products and
services. Those companies already quoted have begun to appreciate the value of
their being listed. To achieve a high rating on their equity, companies need to
produce transparent accounts, communicate effectively with their shareholders
and manage their businesses and assets to their shareholders' advantage. The
restructuring, management incentives and rationalization of companies has lead
to lower wage structures and greater flexibility. This has enabled European
companies to match the competitive cost environment of developing economies.
Demand for equity will grow hand in hand with supply; driven by pension fund
reform, growth in life insurance, shifts in European investing from fixed income
to equities and the emergence of European mutual funds. All of these factors
together will improve the quality of the markets in which European equities are
traded.
RUSSIAN INVESTING. The registration, clearing and settlement of securities
transactions in Russia are subject to significant risks not normally associated
with securities transactions, in the United States and other more developed
markets. Ownership of shares in Russian companies is evidenced by entries in a
company's share register (except where shares are held through depositories that
meet the requirements of the 1940 Act) and the issuance of extracts from the
register or, in certain limited cases, by formal share certificates. However,
Russian share registers are frequently unreliable and the Fund could possibly
lose its registration through oversight, negligence or fraud. Moreover, Russia
lacks a centralized registry to record securities transactions and registrars
located throughout Russia or the companies themselves maintain share registers.
Registrars are under no obligation to provide extracts to potential purchasers
in a timely manner or at all and are not necessarily subject to effective state
supervision. In addition, while registrars are liable under law for losses
resulting from their errors, it may be difficult for the Fund to enforce any
rights it may have against the registrar or issuer of the securities in the
event of loss of share registration. Although Russian companies with more than
1,000 shareholders are required by law to employ an independent company to
maintain share registers, in practice, such companies have not always followed
this law. Because of this lack of independence of registrars, management of a
Russian company may be able to exert considerable influence over who can
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purchase and sell the company's shares by illegally instructing the registrar to
refuse to record transactions on the share register. Furthermore, these
practices may prevent the Fund from investing in the securities of certain
Russian companies deemed suitable by the Adviser and could cause a delay in the
sale of Russian securities by the fund if the company deems a purchaser
unsuitable, which may expose the Fund to potential loss on its investment.
In light of the risks described above, the Board of Directors has approved
certain procedures concerning the Fund's investments in Russian securities.
Among these procedures is a requirement that the Fund will not invest in the
securities of a Russian company unless that issuer's registrar has entered into
a contract with the Fund's sub-custodian containing certain protective
conditions, including, among other things, the sub-custodian's right to conduct
regular share confirmations on behalf of the Fund. This requirement will likely
have the effect of precluding investments in certain Russian companies that the
Fund would otherwise make.
BRADY BONDS. Funds that invest in foreign debt securities may invest in
debt obligations customarily referred to as "Brady Bonds." Brady Bonds are
created through the exchange of existing commercial bank loans to foreign
entities for new obligations in connection with debt restructuring under a plan
introduced by former U.S. Secretary of the Treasury Nicholas F. Brady (the
"Brady Plan"). Brady Bonds may be collateralized or uncollateralized and issued
in various currencies (although most are U.S. dollar-denominated) and they are
actively traded in the over-the-counter secondary market. A Fund may purchase
Brady Bonds either in the primary or secondary markets. The price and yield of
Brady Bonds purchased in the secondary market will reflect the market conditions
at the time of purchase, regardless of the stated face amount and the stated
interest rate. With respect to Brady Bonds with no or limited collateralization,
a Fund will rely for payment of interest and principal primarily on the
willingness and ability of the issuing government to make payment in accordance
with the terms of the bonds.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations which
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating rate bonds, initially is equal to at least
one year's rolling interest payments based on the applicable interest rate at
that time and is adjusted at regular intervals thereafter. Certain Brady Bonds
are entitled to "value recovery payments" in certain circumstances, which in
effect constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute the "residual risk"). In the event of
a default with respect to collateralized Brady Bonds as a result of which the
payment obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held to the scheduled maturity of the
defaulted Brady Bonds by the collateral agent, at which time the face amount of
the collateral will equal the principal payments which would have then been due
on the Brady Bonds in the normal course. In addition, in light of the residual
risk of the Brady Bonds and, among other factors, the history of defaults with
respect to commercial bank loans by public and private entities of countries
issuing Brady Bonds, investments in Brady Bonds should be viewed as speculative.
ILLIQUID SECURITIES
Each Fund may invest a portion of its assets in illiquid securities, which
includes securities that are not readily marketable, repurchase agreements which
have a maturity of longer than seven days and generally includes securities that
are restricted from sale to the public without registration under the Securities
Act of 1933, as amended (the "1933 Act"). The sale of such securities often
requires more time and results in higher brokerage charges or dealer discounts
and other selling expenses than does the sale of liquid securities trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities are often purchased at a discount from the market price of
unrestricted securities of the same issuer reflecting the fact that such
securities may not be readily marketable without some time delay. Investments in
securities for which market quotations are not readily available are valued at
fair value as determined in good faith by the Adviser in accordance with
procedures approved by the Fund's Board of Directors. Ordinarily, a Fund would
invest in restricted securities only when it receives the issuer's commitment to
register the securities without expense to the Fund. However, registration and
underwriting expenses (which typically may range from 7% to 15% of the gross
proceeds of the securities sold) may be paid by a Fund. Restricted securities
which can be offered and sold to qualified institutional buyers under Rule 144A
under the 1933 Act ("144A Securities") and are determined to be liquid under
guidelines adopted by and subject to the supervision of the Fund's Board of
Directors are not subject to the limitation on illiquid securities; however,
such securities are still subject to any Fund limitation on the securities
subject to legal or contractual restrictions on resale as described in the
Fund's investment restrictions. Such 144A Securities are subject to monitoring
and may become illiquid to the extent qualified institutional buyers become, for
a time, uninterested in purchasing such securities. Factors used to determine
whether 144A Securities are liquid include, among other things, a security's
trading history, the availability of reliable pricing information, the number of
dealers making quotes or making a market in such security and the number of
potential purchasers in the market for such security.
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INVESTMENT COMPANY SECURITIES
Each Fund may invest in securities of other open-end or closed-end
investment companies, by purchase in the open market involving only customary
brokers' commissions or in connection with mergers, acquisitions of assets or
consolidations or as may otherwise be permitted by the 1940 Act.
Some emerging market countries have laws and regulations that currently
preclude direct foreign investment in the securities of their companies.
However, indirect foreign investment in the securities of companies listed and
traded on the stock exchanges in these countries is permitted by certain
emerging market countries through investment funds which have been specifically
authorized. Certain Funds may invest in these investment funds, including those
advised by Adviser or its affiliates, subject to applicable provisions of the
1940 Act, and other applicable laws.
If a Fund invests in such investment companies or investment funds, the
Fund's shareholders will bear not only their proportionate share of the expenses
of the Fund (including operating expenses and the fees of the Adviser), but also
will indirectly bear similar expenses of the underlying investment companies or
investment funds.
LOAN PARTICIPATIONS AND ASSIGNMENTS
Certain Funds may invest in fixed and floating rate loans ("Loans") arranged
through private negotiations between an issuer of sovereign or corporate debt
obligations and one or more financial institutions ("Lenders"). Such Funds'
investments in Loans are expected in most instances to be in the form of
participations in Loans ("Participations") and assignments of all or a portion
of Loans ("Assignments") from third parties. In the case of Participations, a
Fund will have the right to receive payments of principal, interest and any fees
to which it is entitled only from the Lender selling the Participations and only
upon receipt by the Lender of the payments from the borrower. In the event of
the insolvency of the Lender selling a Participation, a Fund may be treated as a
general creditor of the Lender and may not benefit from any set-off between the
Lender and the borrower. A Fund will acquire Participations only if the Lender
interpositioned between the Fund and the borrower is determined by the Adviser
to be creditworthy.
When a Fund purchases Assignments from Lenders it will acquire direct rights
against the borrower on the Loan. Because Assignments are arranged through
private negotiations between potential assignees and potential assignors,
however, the rights and obligations acquired by a Fund as the purchaser of an
Assignment may differ from, and be more limited than, those held by the
assigning Lender. Because there is no liquid market for such securities, the
Funds anticipate that such securities could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market may have an
adverse impact on the value of such securities and a Fund's ability to dispose
of particular Assignments or Participations when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations also may make it more
difficult for a Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
LOWER-GRADE SECURITIES
Certain Funds may invest in lower-grade income securities. Securities which
are in the lower-grade categories generally offer higher yields than are offered
by higher-grade securities of similar maturities, but they also generally
involve greater risks, such as greater credit risk, greater market risk and
volatility, greater liquidity concerns and potentially greater manager risk.
Investors should carefully consider the risks of owning shares of a portfolio
which invests in lower-grade securities.
Credit risk relates to the issuer's ability to make timely payment of
interest and principal when due. Lower-grade securities are considered more
susceptible to nonpayment of interest and principal or default than higher-grade
securities. Increases in interest rates or changes in the economy may
significantly affect the ability of issuers of lower-grade debt securities to
pay interest and to repay principal, to meet projected financial goals or to
obtain additional financing. In the event that an issuer of securities held by a
Fund experiences difficulties in the timely payment of principal and interest
and such issuer seeks to restructure the terms of its borrowings, such Fund may
incur additional expenses and may determine to invest additional assets with
respect to such issuer or the project or projects to which the Fund's securities
relate. Further, the Fund may incur additional expenses to the extent that it is
required to seek recovery upon a default in the payment of interest or the
repayment of principal on its portfolio holdings, and the Fund may be unable to
obtain full recovery on such amounts.
Market risk relates to changes in market value of a security that occur as a
result of variation in the level of prevailing interest rates and yield
relationships in the debt securities market and as a result of real or perceived
changes in credit risk. The value of such a Fund's investments can be expected
to fluctuate over time. When interest rates decline, the value of a portfolio
invested in fixed income securities generally can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in fixed
income securities generally can be expected to decline. Debt securities with
longer maturities, which may have higher yields, may increase or decrease in
value more than debt securities with shorter maturities. However, the secondary
market prices of lower-grade debt securities generally are less sensitive to
changes in interest rate and are more sensitive to general adverse economic
changes or specific developments with respect to the particular issuers than are
the secondary market prices of higher-grade debt securities. A significant
increase in interest rates or a general economic downturn could severely disrupt
the market for lower-grade securities and adversely affect the market value of
such securities. Such events also could lead
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to a higher incidence of default by issuers of lower-grade securities as
compared with higher-grade securities. In addition, changes in credit risks,
interest rates, the credit markets or periods of general economic uncertainty
can be expected to result in increased volatility in the market price of the
lower-grade securities in such a Fund and thus in the net asset value of the
Fund. Adverse publicity and investor perceptions, whether or not based on
rational analysis, may affect the value, volatility and liquidity of lower-grade
securities.
The markets for lower-grade securities may be less liquid than the markets
for higher-grade securities. Liquidity relates to the ability of a fund to sell
a security in a timely manner at a price which reflects the value of that
security. To the extent that there is no established retail market for some of
the lower-grade securities in which a Fund may invest, trading in such
securities may be relatively inactive. Prices of lower-grade securities may
decline rapidly in the event a significant number of holders decide to sell.
Changes in expectations regarding an individual issuer of lower-grade securities
generally could reduce market liquidity for such securities and make their sale
by the Fund more difficult, at least in the absence of price concessions. The
effects of adverse publicity and investor perceptions may be more pronounced for
securities for which no established retail market exists as compared with the
effects on securities for which such a market does exist. An economic downturn
or an increase in interest rates could severely disrupt the market for such
securities and adversely affect the value of outstanding securities or the
ability of the issuers to repay principal and interest. Further, a Fund may have
more difficulty selling such securities in a timely manner and at their stated
value than would be the case for securities for which an established retail
market does exist.
The Adviser is responsible for determining the net asset values of the
Funds, subject to the supervision of the Board of Directors. During periods of
reduced market liquidity or in the absence of readily available market
quotations for lower-grade securities, the ability of the Adviser to value the
securities becomes more difficult and the judgment of the Adviser may play a
greater role in the valuation of such securities due to the reduced availability
of reliable objective data.
A Fund may invest in securities not producing immediate cash income,
including securities in default, zero-coupon securities or pay-in-kind
securities, when their effective yield over comparable instruments producing
cash income make these investments attractive. Prices on non-cash-paying
instruments may be more sensitive to changes in the issuer's financial
condition, fluctuation in interest rates and market demand/supply imbalances
than cash-paying securities with similar credit ratings and thus may be more
speculative. In addition, the accrued interest income earned on such instruments
is included in investment company taxable income, thereby increasing the
required minimum distributions to shareholders without providing the
corresponding cash flow with which to pay such distributions. The Adviser will
weigh these concerns against the expected total returns from such instruments.
A Fund's investments may include securities with the lowest-grade assigned
by the recognized rating organizations and unrated securities of comparable
quality. Securities assigned such ratings include those of companies that are in
default or are in bankruptcy or reorganization. Such a Fund may invest in or own
securities of companies in various stages of financial restructuring, bankruptcy
or reorganization which are not currently paying interest or dividends. A Fund
may have limited recourse in the event of default on such debt instruments. A
Fund may invest in loans, assignments of loans and participation in loans.
Securities of such companies are regarded by the rating agencies as having
extremely poor prospects of ever attaining any real investment standing and are
usually available at deep discounts from the face values of the instruments. A
security purchased at a deep discount may currently pay a very high effective
yield. In addition, if the financial condition of the issuer improves, the
underlying value of the security may increase, resulting in capital
appreciation. If the company defaults on its obligations or remains in default,
or if the plan of reorganization does not provide sufficient payments for
debtholders, the deep discount securities may stop generating income and lose
value or become worthless. The Adviser will balance the benefits of deep
discount securities with their risks. While a broad portfolio of investments may
reduce the overall impact of a deep discount security that is in default or
loses its value, the risk cannot be eliminated.
Many lower-grade debt securities are not listed for trading on any national
securities exchange, and many issuers of lower-grade debt securities choose not
to have a rating assigned to their obligations by any recognized rating
organization. As a result, a Fund's portfolio may consist of a higher portion of
unlisted or unrated securities as compared with an investment company that
invests primarily in higher-grade securities. Unrated securities are usually not
as attractive to as many buyers as are rated securities, a factor which may make
unrated securities less marketable. These factors may have the effect of
limiting the availability of the securities for purchase by a Fund and may also
limit the ability of a Fund to sell such securities at their fair value either
to meet redemption requests or in response to changes in the economy or the
financial markets. Further, to the extent a Fund owns or may acquire illiquid or
restricted lower-grade securities, these securities may involve special
registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties.
The Funds will rely on the Adviser's judgment, analysis and experience in
evaluating the creditworthiness of an issue. The amount of available information
about the financial condition of certain lower-grade issuers may be less
extensive than other issuers. In its analysis, the Adviser may consider the
credit ratings of recognized rating organizations in evaluating securities
although the Adviser does not rely primarily on these ratings. Ratings evaluate
only the safety of principal and interest payments, not the market value risk.
Additionally, ratings are general and not absolute standards of quality, and
credit ratings are subject to the risk that the creditworthiness of an issuer
may change and the rating agencies may fail to change such ratings in a timely
fashion. A rating downgrade does not require a Fund to dispose of a security.
The Adviser continuously monitors the issuers of securities held in a Fund.
Additionally, since most foreign debt securities are not rated, a Fund will
invest in such securities based
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on the Adviser's analysis without any guidance from published ratings. Because
of the number of investment considerations involved in investing in lower-grade
securities and foreign debt securities, achievement of such Fund's investment
objectives may be more dependent upon the investment adviser's credit analysis
than is the case with investing in higher-grade securities.
New or proposed laws may have an impact on the market for lower-grade
securities. The Adviser is unable at this time to predict what effect, if any,
legislation may have on the market for lower-grade securities.
Special tax considerations are associated with investing in certain
lower-grade securities, such as zero-coupon or pay-in-kind securities. A Fund
accrues income on these securities prior to the receipt of cash payments. A Fund
must distribute substantially all of its income to its shareholders to qualify
for pass-through treatment under federal income tax law and may, therefore, have
to dispose of its portfolio securities to satisfy distribution requirements.
MORTGAGE-RELATED DEBT SECURITIES
Mortgage-related debt securities represent ownership interests in individual
pools of residential mortgage loans. These securities are designed to provide
monthly payments of interest and principal to the investor. Each mortgagor's
monthly payment to his lending institution on his residential mortgage is
"passed-through" to investors. Mortgage pools consist of whole mortgage loans or
participations in loans. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools.
Lending institutions which originate mortgages for the pools are subject to
certain standards, including credit and underwriting criteria for individual
mortgages included in the pools.
The coupon rate of interest on mortgage-related securities is lower than the
interest rates paid on the mortgages included in the underlying pool, but only
by the amount of the fees paid to the mortgage pooler, issuer, and/or guarantor
of payment of the securities for the guarantee of the services of passing
through monthly payments to investors. Actual yield may vary from the coupon
rate, however, if mortgage-related securities are purchased at a premium or
discount, traded in the secondary market at a premium or discount, or to the
extent that mortgages in the underlying pool are prepaid as noted above. In
addition, interest on mortgage-related securities is earned monthly, rather than
semi-annually as is the case for traditional bonds, and monthly compounding may
tend to raise the effective yield earned on such securities.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed securities
("SMBS") are derivative multiclass mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. government or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose entities
of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on a Fund's yield to maturity from these
securities. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities even if the security is in one of the
highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, certain of these securities may be deemed
"illiquid" and subject to a Fund's limitations on investment in illiquid
securities.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN BRANCHES OF U.S. BANKS
For purposes of the Funds' investment policies with respect to bank
obligations, the assets of a bank or savings institution will be deemed to
include the assets of its domestic and foreign branches. Investments in bank
obligations will include obligations of domestic branches of foreign banks and
foreign branches of domestic banks. Such investments may involve risks that are
different from investments in securities of domestic branches of U.S. banks. See
"Foreign Investing" above for a discussion of the risks of foreign investments.
These institutions may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and record keeping requirements than
those applicable to domestic branches of U.S. banks.
REPURCHASE AGREEMENTS
The Funds may engage in repurchase agreements with broker-dealers, banks or
other financial institutions in order to earn a return on temporarily available
cash. A repurchase agreement is a short-term investment in which the purchaser
(i.e., the Fund) acquires ownership of a security and the seller agrees to
repurchase the obligation at a future time and set price, thereby determining
the yield during the holding period. Repurchase agreements involve certain risks
in the event of default by the other party. A Fund may enter into repurchase
agreements with broker-dealers, banks or other financial institutions deemed to
be
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creditworthy by the Adviser under guidelines approved by the Board of Directors.
A Fund will not invest in repurchase agreements maturing in more than seven days
if any such investment, together with any other illiquid securities held by the
Fund, would exceed the Fund's limitation on illiquid securities described
herein. A Fund does not bear the risk of a decline in value of the underlying
security unless the seller defaults under its repurchase obligation. In the
event of the bankruptcy or other default of a seller of a repurchase agreement,
a Fund could experience both delays in liquidating the underlying securities and
losses including: (a) possible decline in the value of the underlying security
during the period while the Fund seeks to enforce its rights thereto; (b)
possible lack of access to income on the underlying security during this period;
and (c) expenses of enforcing its rights.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that certain funds advised or subadvised by the Adviser or
certain of its affiliates would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
and the funds that contributed to the joint account share pro rata in the net
revenue generated. The Adviser believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced transaction
costs, higher returns, higher quality investments and greater diversity of
investments for the Funds than would be available to the Funds investing
separately. The manner in which the joint account is managed is subject to
conditions set forth in an exemptive order from the SEC permitting this
practice, which conditions are designed to ensure the fair administration of the
joint account and to protect the amounts in that account.
Repurchase agreements are fully collateralized by the underlying securities
and are considered to be loans under the 1940 Act. A Fund pays for such
securities only upon physical delivery or evidence of book entry transfer to the
account of a custodian or bank acting as agent. The seller under a repurchase
agreement will be required to maintain the value of the underlying securities
marked-to-market daily at not less than the repurchase price. The underlying
securities (normally securities of the U.S. government, or its agencies or
instrumentalities) may have maturity dates exceeding one year.
REVERSE REPURCHASE AGREEMENTS
To the extent allowed by the Fund's investment restrictions, certain Funds
may enter into reverse repurchase agreements with brokers, dealers, banks or
other financial institutions that meet the credit guidelines set by the
Company's Board of Directors. In a reverse repurchase agreement, a Fund sells a
security and agrees to repurchase it at a mutually agreed upon date and price,
reflecting the interest rate effective for the term of the agreement. It may
also be viewed as the borrowing of money by a Fund. A Fund's investment of the
proceeds of a reverse repurchase agreement is the speculative factor known as
leverage. A Fund will enter into a reverse repurchase agreement only if the
interest income from investment of the proceeds is expected to be greater than
the interest expense of the transaction and the proceeds are invested for a
period no longer than the term of the agreement. A Fund will maintain with an
appropriate custodian a separate account with a segregated portfolio of cash or
liquid assets in an amount at least equal to its purchase obligations under
these agreements (including accrued interest). If interest rates rise during a
reverse repurchase agreement, it may adversely affect a Fund's net asset value.
In the event that the buyer of securities under a reverse repurchase agreement
files for bankruptcy or becomes insolvent, the buyer or its trustee or receiver
may receive an extension of time to determine whether to enforce the Fund's
repurchase obligation, and the Fund's use of proceeds of the agreement may
effectively be restricted pending such decision.
SECURITIES LENDING
Certain Funds may lend investment securities to qualified broker-dealers,
banks or other recognized institutional borrowers who need to borrow securities
in order to complete certain transactions, such as covering short sales,
avoiding failures to deliver securities or completing arbitrage operations. By
lending its investment securities, a Fund attempts to increase its net
investment income through the receipt of interest on the loan. Any gain or loss
in the market price of the securities loaned that might occur during the term of
the loan would be for the account of the Fund. Each Fund may lend its investment
securities to qualified brokers-dealers, domestic and foreign banks or other
recognized institutional borrowers, so long as the terms, structure and the
aggregate amount of such loans are not inconsistent with the 1940 Act, or the
rules and regulations or interpretations of the SEC thereunder, which currently
require that (a) the borrower pledge and maintain with the Fund collateral
consisting of cash, an irrevocable letter of credit issued by a domestic U.S.
bank, or liquid securities having a value at all times not less than 100% of the
value of the securities loaned, including accrued interest, (b) the borrower add
to such collateral whenever the price of the securities loaned rises (i.e., the
borrower "marks to the market" on a daily basis), (c) the loan be made subject
to termination by the Fund at any time, and (d) the Fund receive reasonable
interest on the loan (which may include the Fund investing any cash collateral
in interest bearing short-term investments), any distributions on the loaned
securities and any increase in their market value. There may be risks of delay
in recovery of the securities or even loss of rights in the collateral should
the borrower of the securities fail financially. However, loans will only be
made to borrowers deemed by the Adviser to be of good standing and when, in the
judgment of the Adviser, the consideration which can be earned currently from
such securities loans justifies the attendant risk. All relevant facts and
circumstances, including the creditworthiness of the broker-dealer, bank or
institution, will be considered in making decisions with respect to the lending
of securities, subject to review by the Directors.
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At the present time, the staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities, so
long as such fees are set forth in a written contract and approved by the
investment company's Directors. In addition, voting rights may pass with the
loaned securities, but if a material event will occur affecting an investment on
loan, the loan must be called and the securities voted.
SHORT SALES
Unless limited by a Fund's fundamental investment restrictions described
herein, each Fund may from time to time sell securities short. A short sale is a
transaction in which a Fund sells a security in anticipation that the market
price of such security will decline. Unless limited by a Fund's fundamental
investment restrictions described herein, each Fund may sell securities it owns
or has the right to acquire at no added cost (i.e., "against the box") or it
does not own. When the Fund makes a short sale, it must borrow the security sold
short and deliver it to the broker-dealer through which it made the short sale
in order to satisfy its obligation to deliver the security upon conclusion of
the sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.
The Fund's obligation to replace the borrowed security will be secured by
collateral of cash or liquid securities. Depending on arrangements made with the
broker-dealer from which it borrowed the security regarding payment over of any
payments received by the Fund on such security, the Fund may not receive any
payments (including interest) on its collateral deposited with such
broker-dealer.
If the price of the security sold short increases between the time of the
short sale and the time the Fund replaces the borrowed security, the Fund will
incur a loss; conversely, if the price declines, the Fund will realize a capital
gain. Any gain will be decreased, and any loss increased, by the transaction
costs described above. Although the Fund's gain is limited to the price at which
it sold the security short, its potential loss is theoretically unlimited.
STRATEGIC TRANSACTIONS
Each Fund may, but is not required to, use various Strategic Transactions
(as defined in the prospectuses) to earn income, facilitate portfolio management
and mitigate risks. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur. Although
the Fund's Adviser seeks to use such transactions to further the Fund's
investment objective(s), no assurance can be given that these transactions will
achieve this result.
FUTURES CONTRACTS. Futures contracts provide for the future sale by one
party and purchase by another party of a specified amount of a specific security
or a specific currency at a specified future time and at a specified price.
Futures contracts, which are standardized as to maturity date and underlying
financial instrument, index or currency, traded in the United States are traded
on national futures exchanges. Futures exchanges and trading are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC"),
a U.S. government agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities or currencies, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold" or "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract is bought
or sold.
Unless otherwise limited in a Fund's prospectus or herein, each Fund may
sell indexed financial futures contracts in anticipation of or during a market
decline to attempt to offset the decrease in market value of securities in its
portfolio that might otherwise result. An index futures contract is an agreement
to take or make delivery of an amount of cash equal to the difference between
the value of the index at the beginning and at the end of the contract period.
Successful use of index futures will be subject to the Adviser's ability to
predict correctly movements in the direction of the relevant securities market.
No assurance can be given that the Adviser's judgment in this respect will be
correct.
Unless otherwise limited in a Fund's prospectus or herein, each Fund may buy
indexed financial futures contracts in anticipation of or during a market
advance to attempt to capture the increase in market value of securities. For
example, if the Adviser believes that a portion of a Fund's assets should be
invested in emerging market country securities but such investments have not
been fully made and the Adviser anticipates a significant market advance, the
Fund may purchase index futures in order to gain rapid market exposure that may
in part or entirely offset increases in the cost of securities that it intends
to purchase. In a substantial majority of these transactions, the Fund will
purchase such securities upon termination of the futures position but, under
unusual market conditions, a futures position may be terminated without the
corresponding purchase of such securities.
Futures traders are required to make a good faith margin deposit in cash or
liquid securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold for prices that
may range upward from less than 5% of the value of the contract being traded.
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After a futures contract position is opened, the value of the contract is
marked-to-market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of an
additional "variation" margin will be required. Conversely, a change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Funds
expect to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the underlying securities with futures contracts that they trade, and use
futures contracts with the expectation of realizing profits from market
fluctuations. The Funds intend to use futures contracts only for hedging
purposes.
Regulations of the CFTC applicable to the Funds require generally that all
futures transactions constitute bona fide hedging transactions. A Fund may
engage in futures transactions for other purposes so long as the aggregate
initial margin and premiums required for such transaction will not exceed 5% of
the liquidation value of the Fund's portfolio, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. The Funds generally will only sell futures contracts to protect securities
owned against declines in price or purchase contracts to protect against an
increase in the price of securities intended for purchase. As evidence of this
hedging interest, the Funds expect that approximately 75% of their respective
futures contracts will be "completed"; that is, equivalent amounts of related
securities will have been purchased or are being purchased by the Fund upon sale
of open futures contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control a Fund's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
the Funds will incur commission expenses in both opening and closing out futures
positions, these costs are lower than transaction costs incurred in the purchase
and sale of the underlying securities.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if a Fund has insufficient
cash, it may have to sell portfolio securities to meet its daily margin
requirement at a time when it may be disadvantageous to do so. In addition, the
Fund may be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on the Fund's ability to effectively hedge.
The Funds will minimize the risk that they will be unable to close out a
futures contract by generally entering into futures which are traded on
recognized international or national futures exchanges and for which there
appears to be a liquid secondary market, however, the Funds may enter into
over-the-counter futures transactions to the extent permitted by applicable law.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss (as well as gain) to the investor. For example, if, at the time of
purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract. However, because the Funds engage
in futures strategies only for hedging purposes, the Adviser does not believe
that the Funds are subject to the risks of loss frequently associated with
futures transactions. The Fund would presumably have sustained comparable losses
if, instead of the futures contract, the Fund had invested in the underlying
security or currency and sold it after the decline.
Utilization of futures transactions by a Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities or currencies being
hedged. It is also possible that a Fund could both lose money on futures
contracts and also experience a decline in value of its portfolio securities.
There is also the risk of loss by a Fund of margin deposits in the event of
bankruptcy of a broker with whom the Fund has an open position in a futures
contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
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OPTIONS TRANSACTIONS. Unless otherwise limited in a Fund's prospectus or
herein, each Fund may write (i.e., sell) covered call options which give the
purchaser the right to buy the underlying security covered by the option from
the Fund at the stated exercise price. A "covered" call option means that so
long as a Fund is obligated as the writer of the option, it will own (i) the
underlying securities subject to the option, or (ii) securities convertible or
exchangeable without the payment of any consideration into the securities
subject to the option.
A Fund will receive a premium from writing call options, which increases the
Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, a Fund will limit
its opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as writer of the option continues. Thus, in some periods a Fund will
receive less total return and in other periods greater total return from writing
covered call options than it would have received from its underlying securities
had it not written call options.
A Fund may sell put options to receive the premiums paid by purchasers and
to close out a long put option position. In addition, when the Adviser wishes to
purchase a security at a price lower than its current market price, a Fund may
write a covered put at an exercise price reflecting the lower purchase price
sought.
A Fund may purchase call options to close out a covered call position or to
protect against an increase in the price of a security it anticipates
purchasing. A Fund may purchase put options on securities which it holds in its
portfolio to protect itself against a decline in the value of the security. If
the value of the underlying security were to fall below the exercise price of
the put purchased in an amount greater than the premium paid for the option, the
Fund would incur no additional loss. A Fund may also purchase put options to
close out written put positions in a manner similar to call option closing
purchase transactions. There are no other limits on a Fund's ability to purchase
call and put options.
Unless the parties provide for it, there is no central clearing or guaranty
function in an over-the-counter option ("OTC Option"). As a result, if the
counterparty fails to make or take delivery of the security, currency or other
instrument underlying an OTC Option it has entered into with a Fund or fails to
make a cash settlement payment due in accordance with the terms of that option,
the Fund will lose any premium it paid for the option as well as any anticipated
benefit of the transaction. Accordingly, the Adviser must assess the
creditworthiness of each such counterparty or any guarantor of credit
enhancement of the counterparty's credit to determine the likelihood that the
terms of the OTC Options will be satisfied. The staff of the SEC currently takes
the position that OTC Options purchased by a Fund or sold by it (the cost of the
sell-back plus the in-the-money amount, if any) are illiquid unless the Fund has
entered into a special arrangement to dispose of the security, and are subject
to the Fund's limitation on investing in illiquid securities.
Investments in options involve some of the same considerations that are
involved in connection with investments in futures contracts (e.g., the
existence of a liquid secondary market). In addition, the purchase of an option
also entails the risk that changes in the value of the underlying security or
contract will not be fully reflected in the value of the option purchased.
Depending on the pricing of the option compared to either the futures contract
or securities, an option may or may not be less risky than ownership of the
futures contract or actual securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract or securities. In the opinion of the Adviser, the risk that a
Fund will be unable to close out an options contract will be minimized by only
entering into options transactions for which there appears to be a liquid
secondary market.
OPTIONS ON FOREIGN CURRENCIES. Unless otherwise limited in a Fund's
prospectus or herein, each Fund may attempt to accomplish objectives similar to
those described herein with respect to forward foreign currency exchange
contracts and futures contracts for currency by means of purchasing put or call
options on foreign currencies on exchanges. A put option gives a Fund the right
to sell a currency at the exercise price until the expiration of the option. A
call option gives a Fund the right to purchase a currency at the exercise price
until the expiration of the option.
The Funds may purchase and write options on foreign currencies in a manner
similar to that in which futures contracts on foreign currencies, or forward
contracts, will be utilized. For example, a decline in the dollar value of a
foreign currency in which portfolio securities are denominated will reduce the
dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminution in the value of
portfolio securities, the Funds may purchase put options on the foreign
currency. If the value of the currency does decline, the Funds will have the
right to sell such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on their portfolios which
otherwise would have resulted. Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is projected,
thereby increasing the cost of such securities, the Funds may purchase call
options thereon. The purchase of such options could offset, at least partially,
the effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Funds derived from purchases of
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, where currency exchange rates do not
move in the direction or to the extent anticipated, the Funds could sustain
losses on transactions in foreign currency options which would require them to
forego a portion or all of the benefits of advantageous changes in such rates.
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<PAGE>
Funds may write options on foreign currencies for the same purposes. For
example, where a Fund anticipates a decline in the dollar value of foreign
currency denominated securities due to adverse fluctuations in exchange rates it
could, instead of purchasing a put option, write a call option on the relevant
currency. If the anticipated decline occurs, the option will most likely not be
exercised, and the diminution in value of portfolio securities will be offset by
the amount of the premium received. Similarly, instead of purchasing a call
option to hedge against an anticipated increase in the dollar cost of securities
to be acquired, the Fund could write a put option on the relevant currency
which, if rates move in the manner projected, will expire unexercised and allow
the portfolio to hedge such increased cost up to the amount of the premium. As
in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to purchase or
sell the underlying currency at a loss which may not be offset by the amount of
the premium. Through the writing of options on foreign currencies, the Fund also
may be required to forego all or a portion of the benefits which might otherwise
have been obtained from favorable movements in exchange rates.
Funds may only write covered call options on foreign currencies. A call
option written on a foreign currency by the portfolio is "covered" if the Fund
owns the underlying foreign currency covered by the call, an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by the Custodian) or upon conversion or exchange of other foreign currency held
in its portfolio. A written call option is also covered if the Fund has a call
on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Fund in cash or other
liquid securities in a segregated account with the Custodian, or (c) maintains
in a segregated account cash or other liquid securities in an amount not less
than the value of the underlying foreign currency in U.S. dollars,
marked-to-market daily.
Funds may also write call options on foreign currencies for cross-hedging
purposes. A call option on a foreign currency is for cross-hedging purposes if
it is designed to provide a hedge against a decline in the U.S. dollar value of
a security which the portfolio owns or has the right to acquire due to an
adverse change in the exchange rate and which is denominated in the currency
underlying the option. In such circumstances, the Fund will either "cover" the
transaction as described above or collateralize the option by maintaining in a
segregated account with the Fund's Custodian, cash or other liquid securities in
an amount not less than the value of the underlying foreign currency in U.S.
dollars marked-to-market daily.
CAPS, FLOORS AND COLLARS. Unless otherwise limited by a Fund's prospectus
or herein, each Fund may invest in caps, floors and collars, which are
instruments analogous to options transactions described above. In particular, a
cap is the right to receive the excess of a reference rate over a given rate and
is analogous to a put option. A floor is the right to receive the excess of a
given rate over a reference rate and is analogous to a call option. Finally, a
collar is an instrument that combines a cap and a floor. That is, the buyer of a
collar buys a cap and writes a floor, and the writer of a collar writes a cap
and buys a floor. The risks associated with caps, floors and collars are similar
to those associated with options. In addition, caps, floors and collars are
subject to risk of default by the counterparty because they are privately
negotiated instruments.
COMBINED TRANSACTIONS. Unless otherwise limited by a Fund's prospectus or
herein, each Fund may enter into multiples of the forwards, futures and options
transactions described above, including multiple options transactions, multiple
futures transactions, multiple foreign currency transactions (including forward
foreign currency exchange contracts) and any combination of futures, options and
foreign currency transactions, instead of a single transaction, as part of a
single portfolio management or hedging strategy when, in the opinion of the
Adviser, it is in the best interest of the Fund to do so. A combined
transaction, while part of a single strategy, may contain elements of risk that
are present in each of its component transactions and will be structured in
accordance with applicable SEC regulations and SEC staff guidelines.
RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS ON
FOREIGN CURRENCIES. Options on foreign currencies and forward contracts are not
traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchase of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the OCC, thereby reducing the risk of
counterparty default. Furthermore, a
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liquid secondary market in options traded on a national securities exchange may
be more readily available than in the over-the-counter market, potentially
permitting a Fund to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effect of other
political and economic events. In addition, exchange-traded options of foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions, on exercise.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decision, (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during non
business hours in the United States, (iv) the imposition of different exercise
and settlement terms and procedures and margin requirements than in the United
States, and (v) lesser trading volume.
STRUCTURED NOTES. Structured Notes are derivatives on which the amount of
principal repayment and/or interest payments is based upon the movement of one
or more factors. These factors may include, but are not limited to, currency
exchange rates, interest rates (such as the prime lending rate and LIBOR) and
stock indices such as the S&P 500 Index. In some cases, the impact of the
movements of these factors may increase or decrease through the use of
multipliers or deflators. The Funds may use structured notes to tailor their
investments to the specific risks and returns the Adviser is willing to accept
while avoiding or reducing certain other risks.
SWAP CONTRACTS. A swap contract is an agreement to exchange the return
generated by one instrument for the return generated by another instrument. The
payment streams are calculated by reference to a specified index and agreed upon
notional amount. The term "specified index" may include, but is not limited to,
currencies, fixed interest rates, prices, total return on interest rate indices,
fixed income indices, stock indices and commodity indices (as well as amounts
derived from arithmetic operations on these indices). For example, a Fund may
agree to swap the return generated by a fixed-income index for the return
generated by a second fixed-income index. The currency swaps in which a Fund may
enter will generally involve an agreement to pay interest streams in one
currency based on a specified index in exchange for receiving interest streams
denominated in another currency. Such swaps may involve initial and final
exchanges that correspond to the agreed upon notional amount.
The swaps in which the noted Funds may engage also include rate caps, floors
and collars under which one party pays a single or periodic fixed amount(s) (or
premium), and the other party pays periodic amounts based on the movement of a
specified index. Swaps do not involve the delivery of securities, other
underlying assets, or principal. Accordingly, the risk of loss with respect to
swaps is limited to the net amount of payments that the Fund is contractually
obligated to make. If the other party to a swap defaults, the Fund's risk of
loss consists of the net amount of payments that the Fund is contractually
entitled to receive. Currency swaps usually involve the delivery of the entire
principal value of one designated currency in exchange for the other designated
currency. Therefore, the entire principal value of a currency swap is subject to
the risk that the other party to the swap will default on its contractual
delivery obligations. If there is a default by the counterparty, the Fund may
have contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid. Caps, floors, and collars are more recent innovations
for which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Funds will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the
portfolio) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash or
liquid securities, to avoid any potential leveraging of the Fund. To the extent
that these swaps, caps, floors, and collars are entered into for hedging
purposes, the Adviser believes such obligations do not constitute "senior
securities" under the 1940 Act and, accordingly, will not treat them as being
subject to the Fund's borrowing restrictions. Funds may enter into OTC
derivatives transactions (swaps, caps, floors, puts, etc., but excluding foreign
exchange contracts) with counterparties that are approved by the Adviser in
accordance with guidelines established by the Board of Directors. These
guidelines provide for a minimum credit rating for each counterparty and various
credit enhancement techniques (for example, collateralization of amounts due
from counterparties) to limit exposure to counterparties with ratings below AA.
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The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the portfolio would be less favorable than it would have been if this
investment technique were not used.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions,
in addition to other requirements, require that a Fund segregate cash and liquid
securities with its custodian to the extent such Fund's obligations are not
otherwise "covered" as described above. In general, either the full amount of
any obligation by the Fund to pay or deliver securities or assets must be
covered at all times by the securities, instruments or currency required to be
delivered (or securities convertible into the needed securities without
additional consideration), or, subject to applicable regulatory restrictions, an
amount of cash or liquid securities at least equal to the current amount of the
obligation must be segregated with the custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. In the case of a futures
contract or an option thereon, the Fund must deposit initial margin and possible
daily variation margin in addition to segregating cash and liquid securities
sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. With respect to swaps, the Fund will accrue the net amount of
the excess, if any, of its obligations over its entitlements with respect to
each swap on a daily basis and will segregate an amount of cash or liquid
securities having a value equal to the accrued excess. Caps, floors and collars
require segregation of cash and liquid securities with a value equal to the
Fund's net obligation, if any. Strategic Transactions may be covered by other
means when consistent with applicable regulatory policies. The Fund may also
enter into offsetting transactions so that its combined position, coupled with
any segregated cash and liquid securities, equals its net outstanding
obligation.
U.S. GOVERNMENT OBLIGATIONS
Examples of types of U.S. Government obligations include U.S. Treasury
Bills, Treasury Notes and Treasury Bonds and the obligations of Federal Home
Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Maritime
Administration, International Bank for Reconstruction and Development (the
"World Bank"), the Asian-American Development Bank and the Inter-American
Development Bank.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Funds may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are bought with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. The payment
obligation and the interest rates that will be received are each fixed at the
time a Fund enters into the commitment, and no interest accrues to the Fund
until settlement. Thus, it is possible that the market value at the time of
settlement could be higher or lower than the purchase price if the general level
of interest rates has changed. Because the Fund relies on the buyer or seller,
as the case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. When the Fund is the
buyer in such a transaction, however, it will maintain, in a segregated account
with its custodian, cash or portfolio securities having an aggregate value equal
to the amount of such purchase commitments until payment is made.
ZERO COUPON BONDS
Zero coupon bonds is a term used to describe notes and bonds which have been
stripped of their unmatured interest coupons, or the coupons themselves, and
also receipts or certificates representing interest in such stripped debt
obligations and coupons. The timely payment of coupon interest and principal on
zero coupon bonds issued by the U.S. Treasury remains guaranteed by the "full
faith and credit" of the United States government.
A zero coupon bond does not pay interest. Instead, it is issued at a
substantial discount to its "face value"--what it will be worth at maturity. The
difference between a security's issue or purchase price and its face value
represents the imputed interest an investor will earn if the security is held
until maturity. For tax purposes, a portion of this imputed interest is deemed
to be income received by zero coupon bondholders each year. Each Fund, which
expects to qualify as a regulated investment company, intends to pass along such
interest as a component of the Fund's distributions of net investment income.
Zero coupon bonds may offer investors the opportunity to earn higher yields
than those available on U.S. Treasury bonds of similar maturity. However, zero
coupon bond prices may also exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest is
returned to the investor.
Zero Coupon Treasury Bonds are sold under a variety of different names, such
as: Certificate of Accrual on Treasury Securities ("CATS"), Treasury Receipts
("TRs"), Separate Trading of Registered Interest and Principal of Securities
("STRIPS") and Treasury Investment Growth Receipts ("TIGERS").
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INVESTMENT RESTRICTIONS
Each Fund has adopted certain investment policies which are either
fundamental investment limitations or non-fundamental investment limitations.
Fundamental investment limitations may not be changed without shareholder
approval by the vote of a majority of its outstanding voting securities, which
is defined by the 1940 Act as the lesser of: (1) 67% or more of the voting
securities of the Fund present at a meeting, if the holders of more than 50% of
the outstanding voting securities of the Fund are present or represented by
proxy, or (2) more than 50% of the outstanding voting securities of the Fund.
Non-fundamental investment limitations may be changed by the Board of Directors
of the Company without shareholder approval.
Each Fund is designated as either a diversified fund or a non-diversified
fund as those terms are defined under the 1940 Act. Like fundamental investment
restrictions, a fund which is designated as a diversified fund may not change
its status to a non-diversified fund without approval by the vote of a majority
of its outstanding voting securities. The following Funds are diversified funds:
American Value Fund, Asian Growth Fund, Equity Growth Fund, European Equity
Fund, Global Equity Allocation Fund, Global Equity Fund, Growth and Income Fund
II, High Yield and Total Return Fund, Japanese Equity Fund, Mid Cap Growth Fund,
Tax Managed Global Franchise Fund, and Value Fund. The following Funds are
non-diversified funds: Emerging Markets Debt Fund, Emerging Markets Fund, Focus
Equity Fund, Global Fixed Income Fund, International Magnum Fund, Latin American
Fund, and Worldwide High Income Fund. As described in the prospectuses for the
non-diversified funds, such funds may invest a greater portion of their assets
in a more limited number of issuers than diversified funds, and therefore,
non-diversified funds are subject to greater risk because the changes in the
financial condition of a single issuer may cause greater fluctuation in the
value of such funds' shares. The percentage limitations contained in the
restrictions and policies set forth herein apply at the time of purchase of
securities. With respect to the limitation on borrowings and illiquid
securities, the percentage limitations apply at the time of purchase and on an
ongoing basis.
For the purpose of describing fundamental investment limitations, the Funds
have been divided into two separate groups, which limitations apply only to the
Funds that form a part of that group. The groups are comprised as follows:
<TABLE>
<S> <C>
Category I Funds: American Value Fund, Asian Growth Fund, Emerging Markets
Fund, European Equity Fund, Focus Equity Fund, Global Equity
Allocation Fund, Global Fixed Income Fund, Growth and Income
Fund II, High Yield & Total Return Fund, International
Magnum Fund, Japanese Equity Fund, Latin American Fund and
Worldwide High Income Fund.
Category II Funds: Emerging Markets Debt Fund, Equity Growth Fund, Global
Equity Fund, Mid Cap Growth Fund Tax Managed Global
Franchise Fund, and Value Fund.
</TABLE>
CATEGORY I FUNDS
The following are fundamental investment limitations with respect to the
Category I Funds. No Category I Fund will:
(1) invest in commodities, except that each of the American Value Fund,
Emerging Markets Fund, European Equity Fund, Focus Equity Fund, Growth and
Income Fund II, Latin American Fund and Worldwide High Income Fund may invest in
futures contracts and options to the extent that not more than 5% of its total
assets are required as deposits to secure obligations under futures contracts
and not more than 20% of its total assets are invested in futures contracts and
options at any time.
(2) purchase or sell real estate or real estate limited partnerships,
although it may purchase and sell securities of companies which deal in real
estate and may purchase and sell securities which are secured by interests in
real estate.
(3) underwrite the securities of other issuers.
(4) invest for the purpose of exercising control over management of any
company.
(5) invest more than 5% of its total assets in securities of companies
which have (with predecessors) a record of less than three years' continuous
operation.
(6) except with respect to the Latin American Fund, acquire any securities
of companies within one industry if, as a result of such acquisition, more than
25% of the value of the Fund's total assets would be invested in securities of
companies within such industry; provided, however, that there shall be no
limitation on the purchase of obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities.
(7) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases.
(8) purchase on margin or sell short except as specified above in (1) and
except that the Emerging Markets Fund, European Equity Fund, Focus Equity Fund,
Latin American Fund and Worldwide High Income Fund may enter into short sales in
accordance with its investment objective and policies.
(9) purchase or retain securities of an issuer if those officers and
Directors of the Company or its investment adviser owning more than 1/2 of 1% of
such securities together own more than 5% of such securities.
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(10) borrow, except from banks and as a temporary measure for extraordinary
or emergency purposes and then, in no event, in excess of 10% of the Fund's
total assets valued at the lower of market or cost and a Fund may not purchase
additional securities when borrowings exceed 5% of total assets, except that the
Growth and Income Fund II, Latin American Fund and Worldwide High Income Fund
may enter into reverse repurchase agreements in accordance with its investment
objective and policies and except that each of the Focus Equity Fund, Latin
American Fund and Worldwide High Income Fund may borrow amounts up to 33 1/3% of
its total assets (including the amount borrowed), less all liabilities and
indebtedness other than the borrowing.
(11) pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value, except that each of the Focus
Equity Fund, Latin American Fund and Worldwide High Income Fund may pledge,
mortgage or hypothecate its assets to secure borrowings in amounts up to 33 1/3%
of its assets (including the amount borrowed).
(12) invest more than an aggregate of 15% of the total assets of the Fund,
determined at the time of investment, in illiquid assets, including repurchase
agreements having maturities of more than seven days or invest in fixed time
deposits with a duration of from two business days to seven calendar days if
more than 10% of the Fund's total assets would be invested in these time
deposits; provided, however, that no Fund shall invest (i) more than 10% of its
total assets in securities subject to legal or contractual restrictions on
resale, except that the High Yield & Total Return Fund may invest up to 20% of
its total assets in 144A Securities (as defined in the Statement of Additional
Information), and (ii) in fixed time deposits with a duration of over seven
calendar days.
(13) invest its assets in securities of any investment company, except by
purchase in the open market involving only customary brokers' commissions or in
connection with mergers, acquisitions of assets or consolidations and except as
may otherwise be permitted by the 1940 Act.
(14) issue senior securities.
(15) make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the limitation
described in (12) above) which are publicly distributed, and (ii) by lending its
portfolio securities to banks, brokers, dealers and other financial institutions
so long as such loans are not inconsistent with the 1940 Act or the rules and
regulations or interpretations of the SEC thereunder.
(16) except for the Emerging Markets Fund, Focus Equity Fund, Global Fixed
Income Fund, International Magnum Fund, Latin American Fund and Worldwide High
Income Fund, purchase more than 10% of any class of the outstanding securities
of any issuer.
(17) except for the Emerging Markets Fund, Focus Equity Fund, Global Fixed
Income Fund, International Magnum Fund, Latin American Fund and Worldwide High
Income Fund, purchase securities of an issuer (except obligations of the U.S.
government and its instrumentalities) if as the result, with respect to 75% of
its total assets, more than 5% of the Fund's total assets, at market value,
would be invested in the securities of such issuer.
The following are non-fundamental investment limitations with respect to the
Category I Funds. As a matter of non-fundamental policy, no Category I Fund
will:
(1) purchase warrants if, by reason of such purchase, more than 5% of the
value of the Fund's net assets would be invested in warrants valued at the lower
of cost or market. Included in this amount, but not to exceed 2% of the value of
the Fund's net assets, may be warrants that are not listed on a nationally
recognized stock exchange.
(2) invest in oil, gas or other mineral leases; invest up to 25% of its
total assets in privately placed securities; or invest more than 15% of its net
assets in illiquid securities.
(3) except with respect to the Latin American Fund, acquire any securities
of companies within one industry if, as a result of such acquisition, 25% or
more of the value of the Fund's total assets would be invested in securities of
companies within such industry; provided, however, that there shall be no
limitation on the purchase of obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities.
The percentage limitations contained in these restrictions apply at the time
of purchase of securities, except for limitations on borrowings and illiquid
securities which apply on an ongoing basis.
CATEGORY II FUNDS
The following are fundamental investment limitations with respect to the
Category II Funds. No Category II Fund will:
(1) invest in physical commodities or contracts on physical commodities,
except that any Fund may acquire physical commodities as a result of ownership
of securities or other instruments and may purchase or sell options or futures
contracts or invest in securities or other instruments backed by physical
commodities.
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(2) purchase or sell real estate, although each Fund may purchase and sell
securities of companies which deal in real estate, other than real estate
limited partnerships, and may purchase and sell marketable securities which are
secured by interests in real estate.
(3) make loans except: (i) by purchasing debt securities in accordance with
their respective investment objectives and policies, or entering into repurchase
agreements, subject to the limitations described in non-fundamental investment
limitation (9) below, (ii) by lending their portfolio securities, and (iii) by
lending portfolio assets to other Funds, banks, brokers, dealers and other
financial institutions, so long as such loans are not inconsistent with the 1940
Act, the rules, regulations, interpretations or orders of the SEC and its staff
thereunder.
(4) except for the Emerging Markets Debt Fund, with respect to 75% of each
Fund's assets, purchase a security if, as a result, the Fund would hold more
than 10% (taken at the time of such investment) of the outstanding voting
securities of any issuer.
(5) except for the Emerging Markets Debt Fund, with respect to 75% of each
Fund's assets, purchase securities of any issuer if, as a result, more than 5%
of the Fund's total assets, taken at market value at the time of such
investment, would be invested in the securities of such issuer except that this
restriction does not apply to securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities.
(6) issue any class of senior security or sell any senior security of which
it is the issuer, except that each Fund may borrow money as a temporary measure
for extraordinary or emergency purposes, provided that such borrowings do not
exceed 33 1/3% of the Fund's total assets (including the amount borrowed) less
liabilities (exclusive of borrowings) and except that the Emerging Markets Debt
Fund may borrow from banks in an amount not in excess of 33 1/3% of its total
assets (including the amount borrowed) less liabilities in accordance with its
investment objective and policies. The term "senior security" shall not include
any temporary borrowings that do not exceed 5% of the value of a Fund's total
assets at the time the Fund makes such temporary borrowing. Notwithstanding the
foregoing limitations on issuing or selling senior securities and borrowing, a
Fund may engage in investment strategies that obligate it either to purchase
securities or segregate assets, or enter into reverse repurchase agreements,
provided that it will segregate assets to cover its obligations pursuant to such
transactions in accordance with applicable rules, orders, or interpretations of
the SEC or its staff. This investment limitation shall not preclude a Fund from
issuing multiple classes of shares in reliance on SEC rules or orders.
(7) underwrite the securities of other issuers (except to the extent that a
Fund may be deemed to be an underwriter within the meaning of the 1933 Act in
connection with the disposition of restricted securities).
(8) Acquire any securities of companies within one industry, if as a result
of such acquisition, more than 25% of the value of the Fund's total assets would
be invested in securities of companies within such industry; provided, however,
that there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities, when any
such Fund adopts a temporary defensive position.
The following are non-fundamental investment limitations with respect to the
Category II Funds. As a matter of non-fundamental policy, no Category II Fund
will:
(1) purchase on margin, except for use of short-term credit as may be
necessary for the clearance of purchases and sales of securities, provided that
each Fund may make margin deposits in connection with transactions in options,
futures, and options on futures.
(2) sell short unless the Fund (i) owns the securities sold short, (ii) by
virtue of its ownership of other securities, has the right to obtain securities
equivalent in kind and amount to the securities sold and, if the right is
conditional, the sale is made upon the same conditions, or (ii) maintains in a
segregated account on the books of the Fund's custodian an amount that, when
combined with the amount of collateral deposited with the broker in connection
with the short sale, equals the current market value of the security sold short
or such other amount as the SEC or its staff may permit by rule, regulation,
order, or interpretation, except that the Emerging Markets Debt Fund may from
time to time sell securities short without limitation but consistent with
applicable legal requirements as stated in its Prospectus; provided that
transactions in futures contracts and options are not deemed to constitute
selling securities short.
(3) purchase or retain securities of an issuer if those Officers and
Directors of the Company or any of its investment advisers owning more than 1/2
of 1% of such securities together own more than 5% of such securities.
(4) borrow money other than from banks or other Funds of the Company,
provided that a Fund may borrow from banks or other Funds of the Company so long
as such borrowing is not inconsistent with the 1940 Act or the rules,
regulations, interpretations or orders of the SEC and its staff thereunder; or,
except for the Emerging Markets Debt Fund, purchase additional securities when
borrowings exceed 5% of total assets.
(5) pledge, mortgage or hypothecate assets in an amount greater than 10% of
its total assets in the case of the Emerging Markets Debt Fund, Equity Growth
Fund and Global Equity Funds or 50% of its total assets in the case of the Mid
Cap Growth Fund and Value Fund, provided that each Fund may segregate assets
without limit in order to comply with the requirements of Section 18(f) of the
1940 Act and applicable rules, regulations or interpretations of the SEC and its
staff.
27
<PAGE>
(6) invest more than an aggregate of 15% of the net assets of the Fund in
illiquid securities provided that this limitation shall not apply to any
investment in securities that are not registered under the 1933 Act but that can
be sold to qualified institutional investors in accordance with Rule 144A under
the 1933 Act and are determined to be liquid securities under guidelines or
procedures adopted by the Board of Directors.
(7) invest for the purpose of exercising control over management of any
company.
(8) invest its assets in securities of any investment company, except by
purchase in the open market involving only customary brokers' commissions or in
connection with mergers, acquisitions of assets or consolidations and except as
may otherwise be permitted by the 1940 Act.
(9) in the case of the Emerging Markets Debt Fund, Equity Growth Fund and
Global Equity Fund, make loans as described in fundamental investment
limitations 3(ii) and 3(iii), above, in an amount exceeding 33 1/3% of its total
assets.
If a percentage limitation on investment or utilization of assets as set
forth above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value or total cost of the Fund's
assets will not be considered a violation of the restriction, and the sale of
securities will not be required, except for the limitation on borrowings and
illiquid securities which apply on an ongoing basis.
DIRECTORS AND OFFICERS
The business and affairs of the Funds are managed under the direction of the
Company's Board of Directors and each Fund's officers appointed by the Board of
Directors. The tables below list the directors and officers of the Funds and
their principal occupations for the last five years and their affiliations, if
any, with Van Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen
Investment Advisory Corp. ("Advisory Corp."), Van Kampen Asset Management Inc.
("Asset Management"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen
Management Inc., Van Kampen Advisors Inc., Van Kampen Insurance Agency of
Illinois Inc., Van Kampen Insurance Agency of Texas Inc., Van Kampen System
Inc., Van Kampen Recordkeeping Services Inc., American Capital Contractual
Services, Inc., Van Kampen Trust Company, Van Kampen Exchange Corp. and
Van Kampen Investor Services Inc. ("Investor Services"). Advisory Corp. and
Asset Management sometimes are referred to herein collectively as the
"Advisers". For purposes hereof, the term "Fund Complex" includes each of the
open-end investment companies advised by the Advisers (excluding Van Kampen
Exchange Fund).
DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Trustee/Director of each of the funds in
1632 Morning Mountain Road the Fund Complex. Co-founder, and prior to August 1996,
Raleigh, NC 27614 Chairman, Chief Executive Officer and President, MDT
Date of Birth: 07/14/32 Corporation (now known as Getinge/Castle, Inc., a subsidiary
Age: 67 of Getinge Industrier AB), a company which develops,
manufactures, markets and services medical and scientific
equipment.
Jerry D. Choate........................... Director of Amgen Inc., a biotechnological company.
53 Monarch Bay Drive Trustee/Director of each of the funds in the Fund Complex.
Dana Point, CA 92629 Prior to January 1999, Chairman and Chief Executive Officer
Date of Birth: 09/16/38 of The Allstate Corporation ("Allstate") and Allstate
Age: 61 Insurance Company. Prior to January 1995, President and
Chief Executive Officer of Allstate. Prior to August 1994,
various management positions at Allstate.
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an executive search
Sears Tower firm. Trustee/Director of each of the funds in the Fund
233 South Wacker Drive Complex. Prior to 1997, Partner, Ray & Berndtson, Inc., an
Suite 7000 executive recruiting and management consulting firm.
Chicago, IL 60606 Formerly, Executive Vice President of ABN AMRO, N.A., a
Date of Birth: 06/03/48 Dutch bank holding company. Prior to 1992, Executive Vice
Age: 51 President of La Salle National Bank. Trustee on the
University of Chicago Hospitals Board, Vice Chair of the
Board of The YMCA of Metropolitan Chicago and a member of
the Women's Board of the University of Chicago. Prior to
1996, Trustee of The International House Board.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------- --------------------------
<S> <C>
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the United
11 DuPont Circle, N.W. States, an independent U.S. foundation created to deepen
Washington, D.C. 20016 understanding, promote collaboration and stimulate exchanges
Date of Birth: 02/29/52 of practical experience between Americans and Europeans.
Age: 48 Trustee/Director of each of the funds in the Fund Complex.
Formerly, advisor to the Dennis Trading Group Inc., a
managed futures and option company that invests money for
individual and institutions. Prior to 1992, President and
Chief Executive Officer, Director and Member of the
Investment Committee of the Joyce Foundation, a private
foundation.
Mitchell M. Merin*........................ President and Chief Operating Officer of Asset Management of
Two World Trade Center Morgan Stanley Dean Witter since December 1998. President
66th Floor and Director since April 1997 and Chief Executive Officer
New York, NY 10048 since June 1998 of Morgan Stanley Dean Witter Advisors Inc.
Date of Birth: 08/13/53 and Morgan Stanley Dean Witter Services Company Inc.
Age: 46 Chairman, Chief Executive Officer and Director of Morgan
Stanley Dean Witter Distributors Inc. since June 1998.
Chairman and Chief Executive Officer since June 1998, and
Director since January 1998, of Morgan Stanley Dean Witter
Trust FSB. Director of various Morgan Stanley Dean Witter
subsidiaries. President of the Morgan Stanley Dean Witter
Funds and Discover Brokerage Index Series since May 1999.
Trustee/Director of each of the funds in the Fund Complex.
Previously Chief Strategic Officer of Morgan Stanley Dean
Witter Advisors Inc. and Morgan Stanley Dean Witter Services
Company Inc. and Executive Vice President of Morgan Stanley
Dean Witter Distributors Inc. April 1997-June 1998, Vice
President of the Morgan Stanley Dean Witter Funds and
Discover Brokerage Index Series May 1997-April 1999, and
Executive Vice President of Dean Witter, Discover & Co.
Jack E. Nelson............................ President and owner, Nelson Investment Planning
423 Country Club Drive Services, Inc., a financial planning company and registered
Winter Park, FL 32789 investment adviser in the State of Florida. President and
Date of Birth: 02/13/36 owner, Nelson Ivest Brokerage Services Inc., a member of the
Age: 64 National Association of Securities Dealers, Inc. and
Securities Investors Protection Corp. Trustee/Director of
each of the funds in the Fund Complex.
Richard F. Powers, III*................... Chairman, President and Chief Executive Officer of Van
1 Parkview Plaza Kampen Investments. Chairman, Director and Chief Executive
P.O. Box 5555 Oficer of the Advisers, the Distributor, Van Kampen
Oakbrook Terrace, IL 60181-5555 Advisors Inc. and Van Kampen Management Inc. Director and
Date of Birth: 02/02/46 officer of certain other subsidiaries of Van Kampen
Age: 54 Investments. Trustee/Director and President of each of the
funds in the Fund Complex. Trustee, President and Chairman
of the Board of other investment companies advised by the
Advisers and their affiliates, and Chief Executive Officer
of Van Kampen Exchange Fund. Prior to May 1998, Executive
Vice President and Director of Marketing at Morgan Stanley
Dean Witter and Director of Dean Witter Discover & Co. and
Dean Witter Realty. Prior to 1996, Director of Dean Witter
Reynolds Inc.
Phillip B. Rooney......................... Vice Chairman (since April 1997) and Director (since 1994)
One ServiceMaster Way of The ServiceMaster Company, a business and consumer
Downers Grove, IL 60515 services company. Director of Illinois Tool Works, Inc., a
Date of Birth: 07/08/44 manufacturing company and the Urban Shopping Centers Inc., a
Age: 55 retail mall management company. Trustee, University of Notre
Dame. Trustee/ Director of each of the funds in the Fund
Complex. Prior to 1998, Director of Stone Smurfit Container
Corp., a paper manufacturing company. From May 1996 through
February 1997 he was President, Chief Executive Officer and
Chief Operating Officer of Waste Management, Inc., an
environmental services company, and from November 1984
through May 1996 he was President and Chief Operating
Officer of Waste Management, Inc.
Fernando Sisto............................ Emeritus Professor Prior to August 1996, a George M. Bond
155 Hickory Lane Chaired Professor with Stevens Institute of Technology and
Closter, NJ 07624 prior to 1995, Dean of the Graduate School, Stevens
Date of Birth: 08/02/24 Institute of Technology. Director, Dynalysis of Princeton, a
Age: 75 firm engaged in engineering research. Trustee/Director of
each of the funds in the Fund Complex.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------- --------------------------
<S> <C>
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher &
333 West Wacker Drive Flom (Illinois), legal counsel to the funds in the Fund
Chicago, IL 60606 Complex, and other investment companies advised by the
Date of Birth: 08/22/39 Advisers or Van Kampen Management Inc. Trustee/Director of
Age: 60 each of the funds in the Fund Complex, and Trustee/Managing
General Partner of other investment companies advised by the
Advisers or Van Kampen Management Inc.
Suzanne H. Woolsey........................ Chief Operating Officer of the National Academy of
2101 Constitution Ave., N.W. Sciences/National Research Council, an independent,
Room 206 federally chartered policy institution, since 1993. Director
Washington, D.C. 20418 of Neurogen Corporation, a pharmaceutical company, since
Date of Birth: 12/27/41 January 1998. Director of the German Marshall Fund of the
Age: 58 United States Trustee of Colorado College and Vice Chair of
the Board of the Council for Excellence in Government.
Trustee/Director of each of the funds in the Fund Complex.
Prior to 1993, Executive Director of the Commission on
Behavioral and Social Sciences and Education at the National
Academy of Sciences/ National Research Council. From 1980
through 1989, Partner of Coopers & Lybrand.
Paul G. Yovovich.......................... Private investor. Director of 3Com Corporation, which
Sears Tower provides information access products and network system
233 South Wacker Drive solutions, COMARCO, Inc., a wireless communications products
Suite 9700 company and APAC Customer Services, Inc., a provider of
Chicago, IL 60606 outsourced customer contact services. Trustee/Director of
Date of Birth: 10/29/53 each of the funds in the Fund Complex. Prior to May 1996,
Age: 46 President of Advance Ross Corporation, an international
transaction services and pollution control equipment
manufacturing company.
</TABLE>
- --------------
* Such director is an "interested person" (within the meaning of
Section 2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of the
Funds by reason of his firm currently acting as legal counsel to the Funds.
Messrs. Merin and Powers are interested persons of the Funds and the Advisers
by reason of their positions with Morgan Stanley Dean Witter or its
affiliates.
OFFICERS
Messrs. Smith, Santo, Hegel, Sullivan and Wood are located at 1 Parkview
Plaza, Oakbrook Terrace, IL 60181-5555. Mr. Boyd is located at 2800 Post Oak
Boulevard, Houston TX 77056 and Mr. Stadler is located at 1221 Avenue of the
Americas, New York, NY 10020.
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
- ----------------- -------------------
<S> <C>
A. Thomas Smith III....................... Executive Vice President, General Counsel, Secretary and
Date of Birth: 12/14/56 Director of Van Kampen Investments, the Advisers, Van Kampen
Age: 43 Advisors Inc., Van Kampen Management Inc., the Distributor,
Vice President and Secretary American Capital Contractual Services, Inc., Van Kampen
Exchange Corp., Van Kampen Recordkeeping Services Inc.,
Investor Services, Van Kampen Insurance Agency of Illinois
Inc. and Van Kampen System Inc. Vice President and
Secretary/Vice President, Principal Legal Officer and
Secretary of other investment companies advised by the
Advisers or their affiliates. Vice President and Secretary
of each of the funds in the Fund Complex. Prior to
January 1999, Vice President and Associate General Counsel
to New York Life Insurance Company ("New York Life"), and
prior to March 1997, Associate General Counsel of New York
Life. Prior to December 1993, Assistant General Counsel of
The Dreyfus Corporation. Prior to August 1991, Senior
Associate, Willkie Farr & Gallagher. Prior to January 1989,
Staff Attorney at the Securities and Exchange Commission,
Division of Investment Management, Office of Chief Counsel.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
- ----------------- -------------------
<S> <C>
Michael H. Santo.......................... Executive Vice President, Chief Administrative Officer and
Date of Birth: 10/25/55 Director of Van Kampen Investments, the Advisers, the
Age: 44 Distributor, Van Kampen Advisors Inc, Van Kampen Management
Vice President Inc. and Van Kampen Investor Services Inc. and serves as a
Director or Officer of certain other subsidiaries of Van
Kampen Investments. Vice President of each of the funds in
the Fund Complex and certain other investment companies
advised by the Advisers and their affiliates. Prior to 1998,
Senior Vice President and Senior Planning Officer for
Individual Asset Management of Morgan Stanley Dean Witter
and its predecessor since 1994. From 1990-1994, First Vice
President and Assistant Controller in Dean Witter's
Controller's Department.
Peter W. Hegel............................ Executive Vice President of the Advisers, Van Kampen
Date of Birth: 06/25/56 Management Inc. and Van Kampen Advisors Inc. Vice President
Age: 43 of each of the funds in the Fund Complex and certain other
Vice President investment companies advised by the Advisers or their
affiliates. Prior to September 1996, Director of McCarthy,
Crisanti & Maffei, Inc, a financial research company.
Stephen L. Boyd........................... Vice President and Chief Investment Officer for Equity
Date of Birth: 11/16/40 Investments of the Advisers. Vice President of each of the
Age: 59 funds in the Fund Complex and certain other investment
Vice President companies advised by the Advisers or their affiliates. Prior
to October 1998, Vice President and Senior Portfolio Manager
with AIM Capital Management, Inc. Prior to February 1998,
Senior Vice President of Van Kampen American Capital Asset
Management, Inc., Van Kampen American Capital Investment
Advisory Corp. and Van Kampen American Capital
Management, Inc.
Joseph P. Stadler......................... Since 1998, Principal of Morgan Stanley & Co. Incorporated
Date of Birth: 06/07/54 and Morgan Stanley Dean Witter Investment Management Inc. He
Age: 45 joined Morgan Stanley & Co. Incorporated and Morgan Stanley
Vice President Dean Witter Investment Management Inc. in 1993. Accountant
with Price Waterhouse LLP (now PricewaterhouseCoopers LLP)
(an accounting firm) from 1983 to 1993. Vice President of
various U.S. registered investment companies managed by
Morgan Stanley Dean Witter Investment Management Inc.
John L. Sullivan.......................... Senior Vice President of Van Kampen Investments and the
Date of Birth: 08/20/55 Advisers. Vice President, Chief Financial Officer and
Age: 44 Treasurer of each of the funds in the Fund Complex and
Treasurer, Vice President and Chief certain other investment companies advised by the Advisers
Financial Officer or their affiliates.
Edward C. Wood, III....................... Senior Vice President of the Advisers, Van Kampen
Date of Birth: 01/11/56 Investments and Van Kampen Management Inc. Senior Vice
Age: 44 President and Chief Operating Officer of the Distributor.
Vice President Vice President of each of the funds in the Fund Complex and
certain other investment companies advised by the Advisers
or their affiliates.
</TABLE>
Each trustee/director holds the same position with each of the funds in the
Fund Complex. As of the date of this Statement of Additional Information, there
are 64 operating funds in the Fund Complex. Each trustee/director who is not an
affiliated person of Van Kampen Investments, the Advisers or the Distributor
(each a "Non-Affiliated Trustee") is compensated by an annual retainer and
meeting fees for services to the funds in the Fund Complex. Each fund in the
Fund Complex provides a deferred compensation plan to its Non-Affiliated
Trustees that allows trustees/directors to defer receipt of their compensation
and earn a return on such deferred amounts. Deferring compensation has the
economic effect as if the Non-Affiliated Trustee reinvested his or her
compensation into the funds. Each fund in the Fund Complex provides a retirement
plan to its Non-Affiliated Trustees that provides Non-Affiliated Trustees with
compensation after retirement, provided that certain eligibility requirements
are met as more fully described below.
The compensation of each Non-Affiliated Trustee includes an annual retainer
in an amount equal to $50,000 per calendar year, due in four quarterly
installments on the first business day of each quarter. Payment of the annual
retainer is allocated among the funds in the Fund Complex on the basis of the
relative net assets of each fund as of the last business day of the preceding
calendar quarter. The compensation of each Non-Affiliated Trustee includes a per
meeting fee from each fund in the Fund Complex in the amount of $200 per
quarterly or special meeting attended by the Non-Affiliated Trustee, due on the
date of the meeting, plus reasonable expenses incurred by the Non-Affiliated
Trustee in connection with his or her services as a trustee, provided that no
compensation will be paid in connection with certain telephonic special
meetings.
31
<PAGE>
Under the deferred compensation plan, each Non-Affiliated Trustee generally
can elect to defer receipt of all or a portion of the compensation earned by
such Non-Affiliated Trustee until retirement. Amounts deferred are retained by
the respective Funds and earn a rate of return determined by reference to the
return on the common shares of such Fund or other funds in the Fund Complex as
selected by the respective Non-Affiliated Trustee, with the same economic effect
as if such Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, the Funds may invest in
securities of those funds selected by the Non-Affiliated Trustees in order to
match the deferred compensation obligation. The deferred compensation plan is
not funded and obligations thereunder represent general unsecured claims against
the general assets of each individual Fund.
Under the retirement plan, a Non-Affiliated Trustee who is receiving
compensation from such Fund prior to such Non-Affiliated Trustee's retirement,
has at least 10 years of service (including years of service prior to adoption
of the retirement plan) and retires at or after attaining the age of 60, is
eligible to receive a retirement benefit equal to $2,500 per year for each of
the ten years following such retirement from such Fund. Non-Affiliated Trustees
retiring prior to the age of 60 or with fewer than 10 years but more than 5
years of service may receive reduced retirement benefits from such Fund. Each
trustee/director has served as a member of the Board of Directors of the Funds
since he or she was first appointed or elected in the year set forth below. The
retirement plan contains a Fund Complex retirement benefit cap of $60,000 per
year.
Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.
COMPENSATION TABLE
<TABLE>
<CAPTION>
FUND COMPLEX
---------------------------------------------------------
AGGREGATE
AGGREGATE ESTIMATED TOTAL
COMPENSATION AGGREGATE PENSION MAXIMUM ANNUAL COMPENSATION
BEFORE DEFERRAL OR RETIREMENT BENEFITS FROM THE BEFORE DEFERRAL
FROM BENEFITS ACCRUED AS FUND UPON FROM FUND
NAME(1) THE COMPANY(2) PART OF EXPENSES(3) RETIREMENT(4) COMPLEX(5)
------- --------------- ------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
J. Miles Branagan.............................. $ 22,100 $ 40,303 $ 60,000 $ 126,000
Jerry D. Choate(1)............................. 4,036 0 60,000 88,700
Linda Hutton Heagy............................. 22,100 5,045 60,000 126,000
R. Craig Kennedy............................... 22,100 3,571 60,000 125,600
Jack E. Nelson................................. 22,100 21,664 60,000 126,000
Phillip B. Rooney.............................. 19,100 7,787 60,000 113,400
Fernando Sisto................................. 22,100 72,060 60,000 126,000
Wayne W. Whalen................................ 22,100 15,189 60,000 126,000
Suzanne H. Woolsey(1).......................... 4,036 0 60,000 88,700
Paul G. Yovovich(1)............................ 15,283 2,845 60,000 126,000
</TABLE>
- --------------
(1) Directors not eligible for compensation are not included in the
Compensation Table. Mr. Yovovich became a member of the Board of Directors
for the Funds and other funds in the fund complex on October 22, 1998 and
therefore does not have a full fiscal year of information to report.
Mr. Choate and Ms. Woolsey became members of the Board of Trustees for the
Funds and other funds in the Fund Complex on May 26, 1999 and therefore do
not have a full year of information to report.
(2) The amounts shown in this column represent the Aggregate Compensation
before Deferral from all operating series of the Company with respect to
the Company's fiscal period ended June 30, 1999. The details of aggregate
compensation before deferral for each series are shown in Table A below.
Certain directors' deferred compensation from the Company during the
fiscal period ended June 30, 1999; the aggregate compensation deferred
from all series of the Company is as follows: Mr. Branagan, $22,100;
Ms. Heagy, $22,100; Mr. Kennedy, $11,054; Mr. Nelson, $22,100;
Mr. Rooney, $19,100; Mr. Sisto, $11,054; Mr. Whalen, $22,100; and
Mr. Yovovich, $11,162. The details of amounts deferred for each series are
shown in Table B below. Amounts deferred are retained by the Funds and
earn a rate of return determined by reference to either the return on the
shares of the respective Fund or other funds in the Fund Complex as
selected by the respective Non-Affiliated Trustee, with the same economic
effect as if such Non-Affiliated Trustee had invested in one or more funds
in the Fund Complex. To the extent permitted by the 1940 Act, each Fund
may invest in securities of those funds selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
cumulative deferred compensation (including interest) accrued with respect
to each director, including former directors, from all operating series of
the Company as of the Company's fiscal period ended June 30, 1999 is as
follows: Mr. Branagan, $40,043; Mr. Gaughan, $311; Ms. Heagy, $35,983;
Mr. Kennedy, $22,104; Mr. Miller, $1,715; Mr. Nelson, $48,568;
Mr. Robinson, $3,510; Mr. Rooney, $36,084; Mr. Sisto, $24,364;
Mr. Whalen, $41,735; and Mr. Yovovich, $11,996. The details of cumulative
deferred compensation (including interest) for each series of the Company
are shown in Table C. The deferred compensation plan is described above
the Compensation Table.
32
<PAGE>
(3) The amounts shown in this column represent the sum of the retirement
benefits accrued by the operating investment companies in the Fund Complex
for each of the directors for the Funds' respective fiscal years ended in
1999. The retirement plan is described above the Compensation Table.
(4) For each director, this is the sum of the estimated maximum annual
benefits payable by the funds in the Fund Complex for each year of the
10-year period commencing in the year of such director's anticipated
retirement. The Retirement Plan is described above the Compensation Table.
Each Non-Affiliated Trustee has served as a member of the Board of
Directors since the year set forth in Table D below.
(5) The amounts shown in this column represent the aggregate compensation paid
by all funds in the Fund Complex as of December 31, 1999 before deferral
by the directors under the deferred compensation plan. Because the funds
in the Fund Complex have different fiscal year ends, the amounts shown in
this column are presented on a calendar year basis. Certain directors
deferred all or a portion of their aggregate compensation from the Fund
Complex during the calendar year ended December 31, 1999. The deferred
compensation earns a rate of return determined by reference to the return
on the shares of the funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if
such Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, the Funds may invest in
securities of those investment companies selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
Advisers and their affiliates also serve as investment adviser for other
investment companies; however, with the exception of Mr. Whalen, the
Non-Affiliated Trustees were not trustees of such investment companies.
Combining the Fund Complex with other investment companies advised by the
Advisers and their affiliates, Mr. Whalen received Total Compensation of
$279,250 during the calendar year ended December 31, 1999.
The Funds, the Adviser, the Subadvisers and the Distributor have adopted
Codes of Ethics (collectively, the "Code of Ethics") that set forth general and
specific standards relating to the securities trading activities of their
employees. The Code of Ethics does not prohibit employees from acquiring
securities that may be purchased or held by the Funds, but is intended to ensure
that all employees conduct their personal transactions in a manner that does not
interfere with the portfolio transactions of the Funds or other Van Kampen
funds, or that such employees take unfair advantage of their relationship with
the Funds. Among other things, the Code of Ethics prohibits certain types of
transactions absent prior approval, imposes various trading restrictions (such
as time periods during which personal transactions may or may not be made) and
requires quarterly reporting of securities transactions and other reporting
obligations. All reportable securities transactions and other required reports
are to be reviewed by appropriate personnel for compliance with the Code of
Ethics. Additional restrictions apply to portfolio managers, traders, research
analysts and others who may have access to nonpublic information about the
trading activities of the Funds or other Van Kampen funds or who otherwise are
involved in the investment advisory process. Exceptions to these and other
provisions of the Code of Ethics may be granted in particular circumstances
after review by appropriate personnel.
As of March 1, 2000, the directors and officers of the Funds owned as a
group 1.175% of the shares of the Van Kampen Tax Managed Global Franchise Fund,
and as a group owned less than 1% of the shares of each of the remaining Funds.
As of June 30, 1999, the following four Funds had not yet commenced
investment operations and therefore are not reported in tables A-D below: Van
Kampen Emerging Markets Debt Fund Van, Kampen Growth and Income Fund II, Van
Kampen Japanese Equity Fund and Van Kampen Mid Cap Growth Fund.
FISCAL YEAR 1999 AGGREGATE COMPENSATION FROM THE COMPANY AND EACH PORTFOLIO
TABLE A
<TABLE>
<CAPTION>
FUND NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO
- --------- --------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
American Value Fund................................... $2,086 $405 $2,086 $2,086 $2,086 $1,886 $2,086
Asian Growth Fund..................................... 1,350 238 1,350 1,350 1,350 1,150 1,350
Emerging Markets Fund................................. 1,356 233 1,356 1,356 1,356 1,156 1,356
Equity Growth Fund.................................... 1,241 215 1,241 1,241 1,241 1,041 1,241
European Equity Fund.................................. 1,003 203 1,003 1,003 1,003 803 1,003
Focus Equity Fund..................................... 1,521 285 1,521 1,521 1,521 1,321 1,521
Global Equity Allocation Fund......................... 2,011 386 2,011 2,011 2,011 1,811 2,011
Global Equity Fund.................................... 2,270 446 2,270 2,270 2,270 2,070 2,270
Global Fixed Income Fund.............................. 1,213 203 1,213 1,213 1,213 1,013 1,213
High Yield & Total Return Fund........................ 1,254 214 1,254 1,254 1,254 1,054 1,254
International Magnum Fund............................. 1,374 238 1,374 1,374 1,374 1,174 1,374
Latin American Fund................................... 1,283 218 1,283 1,283 1,283 1,083 1,283
Tax Managed Global Franchise Fund..................... 1,000 200 1,000 1,000 1,000 800 1,000
Value Fund............................................ 1,593 280 1,593 1,593 1,593 1,393 1,593
Worldwide High Income Fund............................ 1,545 272 1,545 1,545 1,545 1,345 1,545
------- ------ ------- ------- ------- ------- -------
Company Total....................................... $22,100 $4,036 $22,100 $22,100 $22,100 $19,100 $22,100
------- ------ ------- ------- ------- ------- -------
<CAPTION>
FUND NAME WHALEN WOOLSEY YOVOVICH
- --------- -------- -------- --------
<S> <C> <C> <C>
American Value Fund................................... $2,086 $405 $1,462
Asian Growth Fund..................................... 1,350 238 912
Emerging Markets Fund................................. 1,356 233 905
Equity Growth Fund.................................... 1,241 215 839
European Equity Fund.................................. 1,003 203 803
Focus Equity Fund..................................... 1,521 285 1,041
Global Equity Allocation Fund......................... 2,011 386 1,388
Global Equity Fund.................................... 2,270 446 1,589
Global Fixed Income Fund.............................. 1,213 203 810
High Yield & Total Return Fund........................ 1,254 214 841
International Magnum Fund............................. 1,374 238 925
Latin American Fund................................... 1,283 218 853
Tax Managed Global Franchise Fund..................... 1,000 200 800
Value Fund............................................ 1,593 280 1,078
Worldwide High Income Fund............................ 1,545 272 1,037
------- ------ -------
Company Total....................................... $22,100 $4,036 $15,283
------- ------ -------
</TABLE>
33
<PAGE>
1999 AGGREGATE COMPENSATION DEFERRED FROM THE COMPANY AND EACH PORTFOLIO
TABLE B
<TABLE>
<CAPTION>
FUND NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO
- --------- --------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
American Value Fund................................... $ 2,086 $ 0 $ 2,086 $ 1,043 $ 2,086 $ 1,886 $ 1,043
Asian Growth Fund..................................... 1,350 0 1,350 675 1,350 1,150 675
Emerging Markets Fund................................. 1,356 0 1,356 678 1,356 1,156 678
Equity Growth Fund.................................... 1,241 0 1,241 621 1,241 1,041 621
European Equity Fund.................................. 1,003 0 1,003 502 1,003 803 502
Focus Equity Fund..................................... 1,521 0 1,521 761 1,521 1,321 761
Global Equity Allocation Fund......................... 2,011 0 2,011 1,006 2,011 1,811 1,006
Global Equity Fund.................................... 2,270 0 2,270 1,135 2,270 2,070 1,135
Global Fixed Income Fund.............................. 1,213 0 1,213 607 1,213 1,013 607
High Yield & Total Return Fund........................ 1,254 0 1,254 627 1,254 1,054 627
International Magnum Fund............................. 1,374 0 1,374 687 1,374 1,174 687
Latin American Fund................................... 1,283 0 1,283 642 1,283 1,083 642
Tax Managed Global Franchise Fund..................... 1,000 0 1,000 500 1,000 800 500
Value Fund............................................ 1,593 0 1,593 797 1,593 1,393 797
Worldwide High Income Fund............................ 1,545 0 1,545 773 1,545 1,345 773
------- ------ ------- ------- ------- ------- -------
Company Total....................................... $22,100 $ 0 $22,100 $11,054 $22,100 $19,100 $11,054
------- ------ ------- ------- ------- ------- -------
<CAPTION>
FUND NAME WHALEN WOOLSEY YOVOVICH
- --------- -------- -------- --------
<S> <C> <C> <C>
American Value Fund................................... $ 2,086 $ 0 $ 1,036
Asian Growth Fund..................................... 1,350 0 676
Emerging Markets Fund................................. 1,356 0 667
Equity Growth Fund.................................... 1,241 0 629
European Equity Fund.................................. 1,003 0 603
Focus Equity Fund..................................... 1,521 0 766
Global Equity Allocation Fund......................... 2,011 0 985
Global Equity Fund.................................... 2,270 0 1,121
Global Fixed Income Fund.............................. 1,213 0 606
High Yield & Total Return Fund........................ 1,254 0 627
International Magnum Fund............................. 1,374 0 682
Latin American Fund................................... 1,283 0 634
Tax Managed Global Franchise Fund..................... 1,000 0 600
Value Fund............................................ 1,593 0 778
Worldwide High Income Fund............................ 1,545 0 752
------- ------ -------
Company Total....................................... $22,100 $ 0 $11,162
------- ------ -------
</TABLE>
CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE COMPANY AND EACH
PORTFOLIO
TABLE C
<TABLE>
<CAPTION>
FUND NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN
- --------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
American Value Fund................. $ 3,521 $ 0 $ 3,095 $ 1,838 $ 4,068 $ 3,371 $ 1,626 $ 3,506
Asian Growth Fund................... 2,435 0 2,070 1,273 2,810 2,266 1,122 2,425
Emerging Markets Fund............... 2,490 0 2,121 1,302 2,872 2,323 1,145 2,480
Equity Growth Fund.................. 1,434 0 1,360 745 1,678 1,227 678 1,424
European Equity Fund................ 1,153 0 1,095 597 1,339 937 549 1,143
Focus Equity Fund................... 2,637 0 2,262 1,378 3,048 2,470 1,217 2,625
Global Equity Allocation Fund....... 6,498 0 6,816 4,585 9,797 4,980 8,854 8,347
Global Equity Fund.................. 3,998 0 3,541 2,088 4,600 3,861 1,841 3,981
Global Fixed Income Fund............ 2,152 0 1,804 1,126 2,491 1,977 993 2,143
High Yield & Total Return Fund...... 2,212 0 1,861 1,157 2,560 2,037 1,020 2,203
International Magnum Fund........... 2,421 0 2,057 1,266 2,799 2,250 1,116 2,410
Latin American Fund................. 2,342 0 1,982 1,225 2,704 2,172 1,078 2,333
Tax Managed Global Franchise Fund... 1,150 0 1,092 596 1,336 934 547 1,139
Value Fund.......................... 2,827 0 2,439 1,478 3,265 2,667 1,302 2,815
Worldwide High Income Fund.......... 2,773 0 2,388 1,450 3,201 2,612 1,276 2,761
------- ------- ------- ------- ------- ------- ------- -------
Company Total..................... $40,043 $ 0 $35,983 $22,104 $48,568 $36,084 $24,364 $41,735
------- ------- ------- ------- ------- ------- ------- -------
<CAPTION>
FORMER DIRECTORS
------------------------------
FUND NAME WOOLSEY YOVOVICH GAUGHAN MILLER ROBINSON
- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
American Value Fund................. $ 0 $ 1,119 $ 0 $ 0 $ 0
Asian Growth Fund................... 0 725 0 0 0
Emerging Markets Fund............... 0 715 0 0 0
Equity Growth Fund.................. 0 674 0 0 0
European Equity Fund................ 0 645 0 0 0
Focus Equity Fund................... 0 823 0 0 0
Global Equity Allocation Fund....... 0 1,063 311 1,715 3,510
Global Equity Fund.................. 0 1,212 0 0 0
Global Fixed Income Fund............ 0 649 0 0 0
High Yield & Total Return Fund...... 0 672 0 0 0
International Magnum Fund........... 0 732 0 0 0
Latin American Fund................. 0 679 0 0 0
Tax Managed Global Franchise Fund... 0 642 0 0 0
Value Fund.......................... 0 838 0 0 0
Worldwide High Income Fund.......... 0 808 0 0 0
------- ------- ---- ------ ------
Company Total..................... $ 0 $11,996 $311 $1,715 $3,510
------- ------- ---- ------ ------
</TABLE>
YEAR OF ELECTION TO EACH PORTFOLIO OF THE COMPANY
TABLE D
<TABLE>
<CAPTION>
FUND NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO
- --------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
American Value Fund........................... 1997 1999 1997 1997 1997 1997 1997
Asian Growth Fund............................. 1997 1999 1997 1997 1997 1997 1997
Emerging Markets Fund......................... 1997 1999 1997 1997 1997 1997 1997
Equity Growth Fund............................ 1997 1999 1997 1997 1997 1997 1997
European Equity Fund.......................... 1997 1999 1997 1997 1997 1997 1997
Focus Equity Fund............................. 1997 1999 1997 1997 1997 1997 1997
Global Equity Allocation Fund................. 1997 1999 1997 1997 1997 1997 1997
Global Equity Fund............................ 1997 1999 1997 1997 1997 1997 1997
Global Fixed Income Fund...................... 1997 1999 1997 1997 1997 1997 1997
High Yield & Total Return Fund................ 1997 1999 1997 1997 1997 1997 1997
International Magnum Fund..................... 1997 1999 1997 1997 1997 1997 1997
Latin American Fund........................... 1997 1999 1997 1997 1997 1997 1997
Tax Managed Global Franchise Fund............. 1997 1999 1997 1997 1997 1997 1997
Value Fund.................................... 1997 1999 1997 1997 1997 1997 1997
Worldwide High Income Fund.................... 1997 1999 1997 1997 1997 1997 1997
<CAPTION>
FUND NAME WHALEN WOOLSEY YOVOVICH
- --------- -------- -------- --------
<S> <C> <C> <C>
American Value Fund........................... 1997 1999 1998
Asian Growth Fund............................. 1997 1999 1998
Emerging Markets Fund......................... 1997 1999 1998
Equity Growth Fund............................ 1997 1999 1998
European Equity Fund.......................... 1997 1999 1998
Focus Equity Fund............................. 1997 1999 1998
Global Equity Allocation Fund................. 1997 1999 1998
Global Equity Fund............................ 1997 1999 1998
Global Fixed Income Fund...................... 1997 1999 1998
High Yield & Total Return Fund................ 1997 1999 1998
International Magnum Fund..................... 1997 1999 1998
Latin American Fund........................... 1997 1999 1998
Tax Managed Global Franchise Fund............. 1997 1999 1998
Value Fund.................................... 1997 1999 1998
Worldwide High Income Fund.................... 1997 1999 1998
</TABLE>
INVESTMENT ADVISORY AGREEMENTS
Each Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, each Fund retains the
Adviser to manage the investment of its assets, including the placing of orders
for the purchase and sale of portfolio securities. The Adviser obtains and
evaluates economic, statistical and financial information to formulate strategy
and implement the Fund's investment objectives. The Adviser also furnishes
offices, necessary facilities and
34
<PAGE>
equipment, provides administrative services to the Fund, renders periodic
reports to the Board of Directors and permits its officers and employees to
serve without compensation as directors of the Company or officers of the Fund
if elected to such positions. The Funds, however, bear the cost of its
day-to-day operations, including distribution fees, service fees, custodian
fees, legal and independent accountant fees, the costs of providing reports to
shareholders, compensation of directors of the Company (other than those who are
affiliated persons of the Adviser, Distributor or Van Kampen Investments) and
all other ordinary business expenses not specifically assumed by the Adviser.
The Advisory Agreement also provides that the Adviser shall not be liable to a
Fund for any errors of judgment or of law, or for any loss suffered by the Funds
in connection with matters to which the agreement relates, except loss resulting
from willful misfeasance, bad faith, or gross negligence on the part of the
Adviser in the performance of its obligations and duties, or by reason of its
reckless disregard of its obligations and duties under the agreement.
The Advisory Agreement also provides that, in the event the expenses of a
Fund for any fiscal year exceed the most restrictive expense limitation
applicable in any jurisdiction where such Fund's shares are qualified for offer
and sale, the compensation due the Adviser will be reduced by the amount of such
excess and that, if a reduction in and refund of the advisory fee is
insufficient, the Adviser will pay the Fund monthly an amount sufficient to make
up the deficiency, subject to readjustment during the fiscal year.
The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by a Fund's Board of Directors or (ii) by a
vote of a majority of such Fund's outstanding voting securities and (b) by the
affirmative vote of a majority of the Directors who are not parties to the
agreement or interested persons of any such party by votes cast in person at a
meeting called for such purpose. The Advisory Agreement provides that it shall
terminate automatically if assigned and that it may be terminated without
penalty by either party on 60 days' written notice.
35
<PAGE>
During the fiscal years ended June 30, 1999 and 1998, the Adviser received
the approximate advisory fees (net of fee waivers) from the Funds as set forth
in the table below. During the fiscal year ended June 30, 1997, MSWDIM was the
investment adviser for each Fund (except the Mid Cap Growth Fund and Value Fund)
and MAS was the investment adviser for the Mid Cap Growth Fund and Value Fund,
and they earned the approximate advisory fees (net of fee waivers) from the
respective Fund as set forth in the table below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
FUND NAME JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
- --------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
American Value Fund............................ $5,367,000 $2,424,000 $ 297,000
Asian Growth Fund.............................. 1,023,000 1,557,000 4,057,000
Emerging Markets Debt Fund(1).................. -- -- --
Emerging Markets Fund.......................... 1,098,000 1,909,000 1,624,000
Equity Growth Fund(2).......................... 110,000 0 --
European Equity Fund(3)........................ 0 -- --
Focus Equity Fund.............................. 1,816,000 848,000 41,000
Global Equity Allocation Fund.................. 5,422,000 2,107,000 1,264,000
Global Equity Fund(4).......................... 7,424,000 4,344,000 --
Global Fixed Income Fund....................... 0 0 0
Growth and Income Fund II(1)................... -- -- --
High Yield & Total Return Fund................. 108,000 27,000 0
International Magnum Fund...................... 904,000 561,000 0
Japanese Equity Fund(1)........................ -- -- --
Latin American Fund............................ 573,000 1,247,000 324,000
Mid Cap Growth Fund(1)......................... -- -- --
Tax Managed Global Franchise Fund(3)........... 0 -- --
Value Fund(5).................................. 2,088,000 1,311,000 --
Worldwide High Income Fund..................... 1,743,000 1,864,000 1,086,000
</TABLE>
- ------------------
(1) Not operational as of June 30, 1999.
(2) Fund inception May 29, 1998.
(3) Fund inception September 25, 1998.
(4) Fund inception October 29, 1997.
(5) Fund inception July 7, 1997.
During the fiscal years ended June 30, 1999, 1998 and 1997, the Adviser (and
the predecessor adviser, where applicable) waived approximate advisory fees from
the Funds as set forth in the table below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
FUND NAME JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
- --------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
American Value Fund............................ -- 267,000 135,000
Asian Growth Fund.............................. 85,000 266,000 --
Emerging Markets Debt Fund(1).................. -- -- --
Emerging Markets Fund.......................... 239,000 553,000 33,000
Equity Growth Fund(2).......................... 164,000 -- --
European Equity Fund(3)........................ 39,000 -- --
Focus Equity Fund.............................. 252,000 279,000 204,000
Global Equity Allocation Fund.................. 152,000 292,000 293,000
Global Equity Fund(4).......................... -- -- --
Global Fixed Income Fund....................... 62,000 69,000 79,000
Growth and Income Fund II(1)................... -- -- --
High Yield & Total Return Fund................. 180,000 158,000 113,000
International Magnum Fund...................... 39,000 148,000 168,000
Japanese Equity Fund(1)........................ -- -- --
Latin American Fund............................ 137,000 169,000 248,000
Mid Cap Growth Fund(1)......................... -- -- --
Tax Managed Global Franchise Fund(3)........... 12,000 -- --
Value Fund(5).................................. 43,000 278,000 --
Worldwide High Income Fund..................... -- -- --
</TABLE>
- ------------------
(1) Not operational as of June 30, 1999.
(2) Fund inception May 29, 1998.
(3) Fund inception September 25, 1998.
(4) Fund inception October 29, 1997.
(5) Fund inception July 7, 1997.
36
<PAGE>
MSDWIM is the investment sub-adviser of all of the Funds except the Mid Cap
Growth Fund and Value Fund. MAS is the investment sub-adviser of the Mid Cap
Growth Fund and Value Fund. The Sub-Advisers provide investment advice and
portfolio management services pursuant to investment sub-advisory agreements
and, subject to the supervision of the Adviser and the Company's Board of
Directors, make the Funds' investment decisions, arrange for the execution of
portfolio transactions and generally manage the Funds' investments.
The Sub-Advisers are entitled to receive sub-adisory fees computed daily and
paid monthly. Except for the Mid Cap Growth Fund, if the average daily net
assets of a Fund during the monthly period are less than or equal to
$500 million, the Adviser shall pay MSDWIM or MAS, as appropriate, one-half of
the total investment advisory fee payable to the Adviser by the Fund (after
application of any fee waivers in effect) for such monthly period; and a Fund's
average daily net assets for the monthly period are greater than $500 million,
the Adviser shall pay MSDWIM or MAS, as appropriate, a fee for such monthly
period equal to the greater of (a) one-half of what the total investment
advisory fee payable to the Adviser by the Fund (after application of any fee
waivers in effect) for such monthly period would have been had the Fund's
average daily net assets during such period been equal to $500 million, or
(b) forty-five percent of the total investment adisory fee payable to the
Adviser by the Fund (after application of any fee waivers in effect) for such
monthly period. For the Mid Cap Growth Fund, the Adviser shall pay MAS at an
annual rate of .40% of the average daily net assets of such Fund.
OTHER AGREEMENTS
ADMINISTRATION AGREEMENT. Pursuant to an administration agreement between
the Adviser and the Company, the Adviser provides administrative services to the
Funds. The services provided under the Administration Agreement are subject to
the supervision of the officers of the Fund and Board of Directors of the
Company and include day-to-day administration of matters related to the
corporate existence of the Company, maintenance of its records, preparation of
reports, supervision of the Company's arrangements with its custodian and
assistance in the preparation of the Company's registration statements under
federal and state laws. The Administration Agreement also provides that the
Administrator through its agents will provide the Company dividend disbursing
and transfer agent services. The Administration Agreement also provides that the
Administrator shall not be liable to the Company for any actions or omissions if
it or its agents or any of their employees acted without gross negligence or
willful misfeasance.
During the fiscal years ended June 30, 1999 and 1998, the Adviser received
the approximate administative fees from the Funds as set forth in the table
below. During the fiscal year ended June 30, 1997, MSDWIM was the administrator
for each Fund, and MSDWIM received the approximate administration fees from the
Funds as set forth in the table below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
FUND NAME JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
- --------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
American Value Fund............................ $1,590,000 $ 799,000 $ 139,000
Asian Growth Fund.............................. 287,000 463,000 1,080,000
Emerging Markets Debt Fund(1).................. -- -- --
Emerging Markets Fund.......................... 285,000 522,000 445,000
Equity Growth Fund(2).......................... 91,000 1,000 --
European Equity Fund(3)........................ 14,000 -- --
Focus Equity Fund.............................. 579,000 316,000 76,000
Global Equity Allocation Fund.................. 1,473,000 657,000 473,000
Global Equity Fund(4).......................... 1,867,000 1,089,000 --
Global Fixed Income Fund....................... 26,000 27,000 34,000
Growth and Income Fund II(1)................... -- -- --
High Yield & Total Return Fund................. 99,000 64,000 42,000
International Magnum Fund...................... 318,000 237,000 73,000
Japanese Equity Fund(1)........................ -- -- --
Latin American Fund............................ 161,000 335,000 151,000
Mid Cap Growth Fund(1)......................... -- -- --
Tax Managed Global Franchise Fund(3)........... 7,000 -- --
Value Fund(5).................................. 672,000 500,000 --
Worldwide High Income Fund..................... 585,000 626,000 388,000
</TABLE>
- ------------------
(1) Not operational as of June 30, 1999.
(2) Fund inception May 29, 1998.
(3) Fund inception September 25, 1998.
(4) Fund inception October 29, 1997.
(5) Fund inception July 7, 1997.
37
<PAGE>
Under a sub-administration agreement between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain administrative services to the
Company. The Administrator supervises and monitors such administrative services
provided by CGFSC. The services provided under the sub-administration agreement
are subject to the supervision of the Board of Directors of the Company. The
Board of Directors of the Company has approved the provision of services
described above pursuant to the sub-administration agreement as being in the
best interests of the Company. CGFSC's business address is 73 Tremont Street,
Boston, Massachusetts 02108-3913.
LEGAL SERVICES AGREEMENT. The Funds and certain of the other Van Kampen
funds advised by the Adviser or its affiliates and distributed by the
Distributor have entered into legal services agreements pursuant to which Van
Kampen Investments provides legal services, including without limitation:
accurate maintenance of the fund's minute books and records, preparation and
oversight of the fund's regulatory reports, and other information provided to
shareholders, as well as responding to day-to-day legal issues on behalf of the
funds. Payment by the Funds for such services is made on a cost basis for the
salary and salary-related benefits, including but not limited to bonuses, group
insurance and other regular wages for the employment of personnel, as well as
overhead and the expenses related to the office space and the equipment
necessary to render the legal services. Other funds distributed by the
Distributor also receive legal services from Van Kampen Investments. Of the
total costs for legal services provided to funds distributed by the Distributor,
one half of such costs are allocated equally to each fund and the remaining one
half of such costs are allocated to specific funds based on monthly time
records.
During the fiscal years ended June 30, 1999, 1998 and 1997, the Adviser
received the following fees from the Funds pursuant to the legal services
agreement:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
FUND NAME JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
- --------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
American Value Fund............................ $10,876 $ 8,993 $ --
Asian Growth Fund.............................. 5,482 6,152 --
Emerging Markets Debt Fund(1).................. -- -- --
Emerging Markets Fund.......................... 5,550 6,610 --
Equity Growth Fund(2).......................... 3,442 4 --
European Equity Fund(3)........................ 0 N/A --
Focus Equity Fund.............................. 6,382 6,317 --
Global Equity Allocation Fund.................. 10,534 9,334 --
Global Equity Fund(4).......................... 11,824 11,423 --
Global Fixed Income Fund....................... 4,280 4,885 --
Growth and Income Fund II(1)................... -- -- --
High Yield & Total Return Fund................. 4,546 5,055 --
International Magnum Fund...................... 5,385 5,610 --
Japanese Equity Fund(1)........................ -- -- --
Latin American Fund............................ 4,727 5,687 --
Mid Cap Growth Fund(1)......................... -- -- --
Tax Managed Global Franchise Fund(3)........... 3,211 N/A --
Value Fund(5).................................. 7,141 9,199 --
Worldwide High Income Fund..................... 6,616 8,061 --
</TABLE>
- ------------------
(1) Not operational as of June 30, 1999.
(2) Fund inception May 29, 1998.
(3) Fund inception September 25, 1998.
(4) Fund inception October 29, 1997.
(5) Fund inception July 7, 1997.
DISTRIBUTION AND SERVICE
The Distributor acts as the principal underwriter of the Funds' shares
pursuant to a written agreement (the "Distribution and Service Agreement"). The
Distributor has the exclusive right to distribute shares of the Funds through
authorized dealers on a continuous basis. The Distributor's obligation is an
agency or "best efforts" arrangement under which the Distributor is required to
take and pay for only such shares of a Fund as may be sold to the public. The
Distributor is not obligated to sell any stated number of shares. The
Distributor bears the cost of printing (but not typesetting) prospectuses used
in connection with this offering and certain other costs including the cost of
supplemental sales literature and advertising. The Distribution and Service
Agreement is renewable from year to year if approved (a)(i) by a Fund's Board of
Directors or (ii) by a vote of a majority of such Fund's outstanding voting
securities and (b) by the affirmative vote of a majority of Directors who are
not parties to the Distribution and Service Agreement or interested persons of
any party, by votes cast in person at a meeting called for such
38
<PAGE>
purpose. The Distribution and Service Agreement provides that it will terminate
if assigned, and that it may be terminated without penalty by either party on
90 days' written notice. Total underwriting commissions on the sale of shares of
the Funds for the last three fiscal years are shown in the chart below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
-------------------------- -------------------------- --------------------------
TOTAL AMOUNTS TOTAL AMOUNTS TOTAL AMOUNTS
UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY
FUND NAME COMMISSIONS DISTRIBUTOR COMMISSIONS DISTRIBUTOR COMMISSIONS DISTRIBUTOR
- --------- ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
American Value Fund............. $2,919,020 $228,560 $4,773,186 $658,912 $349,953 $ 47,963
Asian Growth Fund............... 397,591 25,451 749,053 98,417 832,975 103,092
Emerging Markets Debt Fund(1)... -- -- -- -- -- --
Emerging Markets Fund........... 344,275 21,951 638,827 85,770 612,339 84,793
Equity Growth Fund(2)........... 526,879 67,063 0 0 N/A N/A
European Equity Fund(3)......... 30,192 3,501 N/A N/A N/A N/A
Focus Equity Fund............... 1,229,038 83,560 1,640,138 229,561 656,053 87,259
Global Equity Allocation Fund... 1,266,693 110,283 1,033,797 135,086 310,083 39,966
Global Equity Fund(4)........... 3,117,074 62,141 3,370,697 466,837 N/A N/A
Global Fixed Income Fund........ 23,425 1,613 9,204 1,082 34,196 1,954
Growth and Income Fund II(1).... -- -- -- -- -- --
High Yield & Total Return Fund.. 121,267 7,888 132,102 13,824 25,581 2,379
International Magnum Fund....... 484,186 34,803 1,045,607 140,250 380,391 52,266
Japanese Equity Fund(1)......... -- -- -- -- -- --
Latin American Fund............. 217,094 13,361 986,259 133,298 706,758 94,909
Mid Cap Growth Fund(1).......... -- -- -- -- -- --
Tax Managed Global Franchise
Fund(3)........................ 12,337 1,748 N/A N/A N/A N/A
Value Fund(5)................... 1,338,133 70,253 6,293,710 856,595 N/A N/A
Worldwide High Income Fund...... 950,093 34,465 1,276,023 135,143 648,293 73,078
</TABLE>
- ------------------
(1) Not operational as of June 30, 1999.
(2) Fund inception May 29, 1998.
(3) Fund inception September 25, 1998.
(4) Fund inception October 29, 1997.
(5) Fund inception July 7, 1997.
With respect to sales of Class A Shares of the Funds, the total sales
charges and concessions reallowed to authorized dealers at the time of purchase
are as follows:
CLASS A SHARES SALES CHARGE TABLES
With respect to Emerging Markets Debt Fund, Global Fixed Income Fund, High
Yield & Total Return Fund and Worldwide High Income Fund:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
---------------------- REALLOWED
AS % OF AS % OF NET TO DEALERS
SIZE OF OFFERING AMOUNT AS A % OF
INVESTMENT PRICE INVESTED OFFERING PRICE
- ---------- -------- ----------- --------------
<S> <C> <C> <C>
Less than $100,000.......................................... 4.75% 4.99% 4.25%
$100,000 but less than $250,000............................. 3.75% 3.90% 3.25%
$250,000 but less than $500,000............................. 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000........................... 2.00% 2.04% 1.75%
$1,000,000 or more.......................................... * * *
</TABLE>
With respect to all of the remaining Funds:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
---------------------- REALLOWED
AS % OF AS % OF NET TO DEALERS
SIZE OF OFFERING AMOUNT AS A % OF
INVESTMENT PRICE INVESTED OFFERING PRICE
- ---------- -------- ----------- --------------
<S> <C> <C> <C>
Less than $50,000........................................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000.............................. 4.75% 4.99% 4.00%
$100,000 but less than $250,000............................. 3.75% 3.90% 3.00%
$250,000 but less than $500,000............................. 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000........................... 2.00% 2.04% 1.75%
$1,000,000 or more.......................................... * * *
</TABLE>
- --------------
* No sales charge is payable at the time of purchase on investments of
$1 million or more, although the Fund may impose a contingent deferred sales
charge of 1.00% on certain redemptions made within one year of the purchase. A
commission or transaction fee will be paid by the Distributor at the time of
purchase directly out of the Distributor's assets (and not out of the Fund's
assets) to authorized dealers who initiate and are responsible for purchases
of $1 million or more computed on a percentage of the dollar value of such
shares sold as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
39
<PAGE>
With respect to sales of Class B Shares and Class C Shares, a commission or
transaction fee generally will be paid by the Distributor at the time of
purchase directly out of the Distributor's assets (and not out of the Fund's
assets) to authorized dealers who initiate and are responsible for such
purchases computed based on a percentage of the dollar value of such shares sold
of 4.00% on Class B Shares and 1.00% on Class C Shares.
Proceeds from any contingent deferred sales charge and any distribution fees
on Class B Shares and Class C Shares are paid to the Distributor and are used by
the Distributor to defray its distribution related expenses in connection with
the sale of the Fund's shares, such as the payment to authorized dealers for
selling such shares. With respect to Class C Shares, the authorized dealers
generally are paid the ongoing commission and transaction fees of up to 0.75% of
the average daily net assets of a Fund's Class C Shares annually commencing in
the second year after purchase.
In addition to reallowances or commissions described above, the Distributor
may from time to time implement programs under which an authorized dealer's
sales force may be eligible to win nominal awards for certain sales efforts or
under which the Distributor will reallow to any authorized dealer that sponsors
sales contests or recognition programs conforming to criteria established by the
Distributor, or participates in sales programs sponsored by the Distributor, an
amount not exceeding the total applicable sales charges on the sales generated
by the authorized dealer at the public offering price during such programs.
Also, the Distributor in its discretion may from time to time, pursuant to
objective criteria established by the Distributor, pay fees to, and sponsor
business seminars for, qualifying authorized dealers for certain services or
activities which are primarily intended to result in sales of shares of the Fund
or other Van Kampen funds. Fees may include payment for travel expenses,
including lodging, incurred in connection with trips taken by invited registered
representatives for meetings or seminars of a business nature. In some instances
additional compensation or promotional incentives may be offered to brokers,
dealers or financial intermediaries that have sold or may sell significant
amounts of shares during specified periods of time. The Distributor may provide
additional compensation to Edward D. Jones & Co. or an affiliate thereof based
on a combination of its quarterly sales of shares of the Funds and other Van
Kampen funds and increases in net assets of the Funds and other Van Kampen funds
over specified thresholds. All of the foregoing payments are made by the
Distributor out of its own assets. Such fees paid for such services and
activities with respect to a Fund will not exceed in the aggregate 1.25% of the
average total daily net assets of such Fund on an annual basis. These programs
will not change the price an investor will pay for shares or the amount that a
Fund will receive from such sale.
The Funds have each adopted a distribution plan (the "Distribution Plan")
with respect to each class of its shares pursuant to Rule 12b-1 under the 1940
Act. The Fund also has adopted a service plan (the "Service Plan") with respect
to each class of its shares. The Distribution Plan and the Service Plan
sometimes are referred to herein as the "Plans". The Plans provide that a Fund
may spend a portion of the Fund's average daily net assets attributable to each
class of shares in connection with distribution of the respective class of
shares and in connection with the provision of ongoing services to shareholders
of such class, respectively. The Distribution Plan and the Service Plan are
being implemented through the Distribution and Service Agreement with the
Distributor of each class of the Fund's shares and sub-agreements between the
Distributor and members of the NASD who are acting as securities dealers and
NASD members or eligible non-members who are acting as brokers or agents and
similar agreements between a Fund and financial intermediaries who are acting as
brokers (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance, which may include, but not
be limited to, processing purchase and redemption transactions, establishing and
maintaining shareholder accounts regarding the Fund, and such other services as
may be agreed to from time to time and as may be permitted by applicable
statute, rule or regulation. Brokers, dealers and financial intermediaries that
have entered into sub-agreements with the Distributor and sell shares of the
Fund are referred to herein as "financial intermediaries."
Certain financial intermediaries may be prohibited under the law from
providing certain underwriting or distribution services. If a financial
intermediary were prohibited from acting in any capacity or providing any of the
described services, the Distributor would consider what action, if any, would be
appropriate. The Distributor does not believe that termination of a relationship
with a financial intermediary would result in any material adverse consequences
to the Fund.
The Distributor must submit quarterly reports to the Board of Directors,
with respect to each Fund setting forth separately by class of shares all
amounts paid under the Distribution Plan and the purposes for which such
expenditures were made, together with such other information as from time to
time is reasonably requested by the Board of Directors. The Plans provide that
they will continue in full force and effect from year to year so long as such
continuance is specifically approved by a vote of the Board of Directors, and
also by a vote of the disinterested Directors, cast in person at a meeting
called for the purpose of voting on the Plans. Each of the Plans may not be
amended to increase materially the amount to be spent for the services described
therein with respect to any class of shares without approval by a vote of a
majority of the outstanding voting shares of such class, and all material
amendments to either of the Plans must be approved by the Board of Directors and
also by the disinterested Directors. Each of the Plans may be terminated with
respect to any class of shares at any time by a vote of a majority of the
disinterested Directors or by a vote of a majority of the outstanding voting
shares of such class.
The Plans obligate the Funds to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Funds
to reimburse the Distributor for the actual expenses the Distributor may incur
in fulfilling its obligations under the Plan. Thus, under each Plan, even if the
Distributor's actual expenses exceed the fee payable to it thereunder at any
given time, the Funds will not be obligated to pay more than that fee.
Because each Fund is a series of the Company, amounts paid to the
Distributor as reimbursement for expenses of one series of the Company may
indirectly benefit the other Funds which are series of the Company. The
Distributor will endeavor to
40
<PAGE>
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the contingent deferred sales charge applicable
to a particular class of shares to defray distribution-related expenses
attributable to any other class of shares.
As of June 30, 1999, the unreimbursed distribution-related expenses with
respect to Class B Shares and Class C shares, and the percentage of the Fund's
net assets attributable to Class B Shares and Class C Shares are represented
below.
<TABLE>
<CAPTION>
B SHARES C SHARES
---------------------------- ----------------------------
PERCENTAGE OF PERCENTAGE OF
UNREIMBURSED FUND'S NET UNREIMBURSED FUND'S NET
FUND NAME DISTRIBUTION ASSETS DISTRIBUTION ASSETS
- --------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
American Value Fund......................... $10,138,207 2.97% $152,210 0.09%
Asian Growth Fund........................... 2,450,266 5.71 22,692 0.06
Emerging Markets Fund....................... 1,836,551 4.79 17,012 0.08
Equity Growth Fund.......................... 606,348 2.53 22,770 0.31
European Equity Fund........................ 14,804 0.48 1,508 0.10
Focus Equity Fund........................... 4,521,932 2.57 20,961 0.08
Global Equity Fund.......................... 19,894,984 3.34 47,093 0.07
Global Equity Allocation Fund............... 1,956,904 0.84 169,199 0.17
Global Fixed Income Fund.................... 87,937 5.65 2,100 0.14
High Yield & Total Return Fund.............. 711,833 3.14 16,111 0.20
International Magnum Fund................... 1,651,126 3.43 5,147 0.04
Latin American Fund......................... 1,036,423 5.58 17,977 0.17
Tax Managed Global Franchise Fund........... 6,435 1.05 1,380 0.29
Value Fund.................................. 4,179,000 3.27 81,668 0.28
Worldwide High Income Fund.................. 5,193,409 4.85 66,211 0.16
</TABLE>
41
<PAGE>
As reimbursement for providing distribution services to the Company for the
fiscal year ended June 30, 1999, the Distributor received aggregate fees of
approximately $23,977,000 which were attributable approximately as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED PERCENTAGE OF
JUNE 30, 1999 AVERAGE DAILY
FUND NAME (000) NET ASSETS
- --------- ----------------- -------------
<S> <C> <C>
American Value Fund -- Class A.............................. $ 540 .25%
American Value Fund -- Class B.............................. 2,840 1.00%
American Value Fund -- Class C.............................. 1,313 1.00%
Asian Growth Fund -- Class A................................ 130 .25%
Asian Growth Fund -- Class B................................ 291 1.00%
Asian Growth Fund -- Class C................................ 295 1.00%
Emerging Markets Debt Fund -- Class A(1).................... --%
Emerging Markets Debt Fund -- Class B(1).................... --%
Emerging Markets Debt Fund -- Class C(1).................... --%
Emerging Markets Fund -- Class A............................ 141 .25%
Emerging Markets Fund -- Class B............................ 299 1.00%
Emerging Markets Fund -- Class C............................ 205 1.00%
Equity Growth Fund -- Class A............................... 30 .25%
Equity Growth Fund -- Class B............................... 163 1.00%
Equity Growth Fund -- Class C............................... 58 1.00%
European Equity Fund -- Class A............................. 3 .25%
European Equity Fund -- Class B............................. 17 1.00%
European Equity Fund -- Class C............................. 10 1.00%
Focus Equity Fund -- Class A................................ 155 .25%
Focus Equity Fund -- Class B................................ 1,433 1.00%
Focus Equity Fund -- Class C................................ 244 1.00%
Global Equity Allocation Fund -- Class A.................... 588 .25%
Global Equity Allocation Fund -- Class B.................... 2,243 1.00%
Global Equity Allocation Fund -- Class C.................... 998 1.00%
Global Equity Fund -- Class A............................... 191 .25%
Global Equity Fund -- Class B............................... 6,007 1.00%
Global Equity Fund -- Class C............................... 657 1.00%
Global Fixed Income Fund -- Class A......................... 11 .25%
Global Fixed Income Fund -- Class B......................... 17 1.00%
Global Fixed Income Fund -- Class C......................... 18 1.00%
Growth and Income Fund II -- Class A(1)..................... --%
Growth and Income Fund II -- Class B(1)..................... --%
Growth and Income Fund II -- Class C(1)..................... --%
High Yield & Total Return Fund -- Class A................... 23 .25%
High Yield & Total Return Fund -- Class B................... 209 1.00%
High Yield & Total Return Fund -- Class C................... 82 1.00%
International Magnum Fund -- Class A........................ 138 .25%
International Magnum Fund -- Class B........................ 482 1.00%
International Magnum Fund -- Class C........................ 144 1.00%
Japanese Equity Fund -- Class A(1).......................... --%
Japanese Equity Fund -- Class B(1).......................... --%
Japanese Equity Fund -- Class C(1).......................... --%
Latin American Fund -- Class A.............................. 75 .25%
Latin American Fund -- Class B.............................. 169 1.00%
Latin American Fund -- Class C.............................. 96 1.00%
Mid Cap Growth Fund -- Class A(1)........................... --%
Mid Cap Growth Fund -- Class B(1)........................... --%
Mid Cap Growth Fund -- Class C(1)........................... --%
Tax Managed Global Franchise Fund -- Class A................ 2 .25%
Tax Managed Global Franchise Fund -- Class B................ 3 1.00%
Tax Managed Global Franchise Fund -- Class C................ 3 1.00%
Value Fund -- Class A....................................... 270 .25%
Value Fund -- Class B....................................... 1,279 1.00%
Value Fund -- Class C....................................... 306 1.00%
Worldwide High Income Fund -- Class A....................... 173 .25%
Worldwide High Income Fund -- Class B....................... 1,158 1.00%
Worldwide High Income Fund -- Class C....................... 468 1.00%
</TABLE>
- ------------------
(1) Not operational as of June 30, 1999.
42
<PAGE>
TRANSFER AGENT
The Funds' transfer agent, shareholder service agent and divided disbursing
agent is Van Kampen Investor Services Inc., PO Box 218256, Kansas City, MO
64121-8256. The transfer agency prices are determined through negotiations with
the Fund's Board of Directors and are based on competitive benchmarks.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser is responsible for decisions to buy and sell securities for the
Funds, the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions on such transaction. While
the Adviser will be primarily responsible for the placement of each Fund's
portfolio business, the policies and practices in this regard will at all times
be subject to review by the Board of Directors.
With respect to the Emerging Markets Debt Fund, the Global Fixed Income
Fund, the High Yield & Total Return Fund and the Worldwide High Income Fund;
most transactions made by such Funds are principal transactions at net prices
and the Funds generally incur little or no brokerage costs. The portfolio
securities in which these Funds invest are normally purchased directly from the
issuer or in the over-the-counter market from an underwriter or market maker for
the securities. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers include a spread or markup to the dealer
between the bid and asked price. Sales to dealers are effected at bid prices.
These Funds may also purchase certain money market instruments directly from an
issuer, in which case no commissions or discounts are paid, or may purchase and
sell listed securities on an exchange, which are effected through brokers who
charge a commission for their services.
The Adviser is responsible for placing portfolio transactions and does so in
a manner deemed fair and reasonable to the Funds and not according to any
formula. The primary consideration in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker/dealers and in negotiating prices and any brokerage commissions
on such transactions, the Adviser considers the firm's reliability, integrity
and financial condition and the firm's execution capability, the size and
breadth of the market for the security, the size of and difficulty in executing
the order, and the best net price. There are many instances when, in the
judgment of the Adviser, more than one firm can offer comparable execution
services. In selecting among such firms, consideration may be given to those
firms which supply research and other services in addition to execution
services. The Adviser is authorized to pay higher commissions to brokerage firms
that provide it with investment and research information than to firms which do
not provide such services if the Adviser determines that such commissions are
reasonable in relation to the overall services provided. No specific value can
be assigned to such research services which are furnished without cost to the
Adviser. Since statistical and other research information is only supplementary
to the research efforts of the Adviser to the Fund and still must be analyzed
and reviewed by its staff, the receipt of research information is not expected
to reduce its expenses materially. The investment advisory fee is not reduced as
a result of the Adviser's receipt of such research services. Services provided
may include (a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). Research
services furnished by firms through which the Fund effects its securities
transactions may be used by the Adviser in servicing all of its advisory
accounts; not all of such services may be used by the Adviser in connection with
the Funds.
The Adviser also may place portfolio transactions, to the extent permitted
by law, with brokerage firms affiliated with the Funds, the Adviser or the
Distributor and with brokerage firms participating in the distribution of the
Funds' shares if it reasonably believes that the quality of execution and the
commission are comparable to that available from other qualified firms.
Similarly, to the extent permitted by law and subject to the same considerations
on quality of execution and comparable commission rates, the Adviser may direct
an executing broker to pay a portion or all of any commissions, concessions or
discounts to a firm supplying research or other services or to a firm
participating in the distribution of the Funds' shares.
The Adviser may place portfolio transactions at or about the same time for
other advisory accounts, including other investment companies. The Adviser seeks
to allocate portfolio transactions equitably whenever concurrent decisions are
made to purchase or sell securities for a Fund and another advisory account. In
some cases, this procedure could have an adverse effect on the price or the
amount of securities available to such Fund. In making such allocations among a
Fund and other advisory accounts, the main factors considered by the Adviser are
the respective sizes of the Fund and other advisory accounts, the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and opinions of the persons responsible
for recommending the investment.
Morgan Stanley & Co. Incorporated is an affiliate of the Adviser (and the
predecessor adviser) of the Funds. Effective May 31, 1997, Dean Witter
Reynolds, Inc. ("Dean Witter") became an affiliate of the Adviser (and the
predecessor adviser) of the Funds. The Board of Directors have adopted certain
policies incorporating the standards of Rule 17e-1 issued by the SEC under the
1940 Act which requires that the commissions paid to affiliates of the Funds
must be reasonable and fair compared to the commissions, fees or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time. The rule and procedures also contain review requirements and require
the Adviser to furnish reports to the Board of Directors and to maintain records
in connection with such reviews. After consideration of all factors deemed
relevant, the Board of Directors will consider from time to time whether the
advisory fee for each Fund will be reduced by all or a portion of the brokerage
commission given to affiliated brokers.
The Funds paid the following commissions to all brokers and affiliated
brokers during the periods shown:
43
<PAGE>
<TABLE>
<CAPTION>
EMERGING
AMERICAN ASIAN MARKETS EMERGING EQUITY EUROPEAN FOCUS
FISCAL YEAR ENDED VALUE GROWTH DEBT MARKETS GROWTH EQUITY EQUITY
JUNE 30, 1999 FUND FUND FUND(1) FUND FUND FUND FUND
- ----------------- -------- ------ -------- -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Total brokerage
commissions............... $ 5,210,669 $ 1,059,398 $ -- $ 892,711 $ 96,599 $ 20,070 $ 1,158,339
Commissions with Morgan
Stanley................... $ 2,130 $ 53,519 $ -- $ 49,419 $ 1,755 $ 1,984 $ 13,980
Percentage of total
commissions.............. 0.04% 5.05% --% 5.54% 1.82% 9.89% 1.21%
Commissions with Dean
Witter.................... $ 1,356 $ 0 $ -- $ 0 $ 0 $ 0 $ 0
Percentage of total
commissions.............. 0.03% 0% --% 0% 0% 0% 0%
Percentage of total value of
brokerage transactions
with Morgan Stanley....... 0.06% 5.30% --% 4.72% 2.19% 7.33% 1.75%
Percentage of total value of
brokerage transactions
with Dean Witter.......... 0.01% 0% --% 0% 0% 0% 0%
Commissions for research
services.................. $ 4,704,647 $ 1,059,398 $ -- $ 892,711 $ 76,151 $ 20,070 $ 1,109,511
Value of research
transactions.............. $1,968,924,455 $283,946,042 $ -- $263,588,372 $67,510,503 $10,392,253 $876,267,703
<CAPTION>
GLOBAL
EQUITY GLOBAL
FISCAL YEAR ENDED ALLOCATION EQUITY
JUNE 30, 1999 FUND FUND
- ----------------- ---------- ------
<S> <C> <C>
Total brokerage
commissions............... $ 723,144 $ 1,180,688
Commissions with Morgan
Stanley................... $ 1,790 $ 106,499
Percentage of total
commissions.............. 0.25% 9.02%
Commissions with Dean
Witter.................... $ 0 $ 0
Percentage of total
commissions.............. 0% 0%
Percentage of total value of
brokerage transactions
with Morgan Stanley....... 0.08% 8.54%
Percentage of total value of
brokerage transactions
with Dean Witter.......... 0% 0%
Commissions for research
services.................. $ 723,144 $ 1,180,688
Value of research
transactions.............. $740,411,692 $537,623,505
</TABLE>
<TABLE>
<CAPTION>
HIGH
GLOBAL GROWTH YIELD & INTER-
FIXED AND TOTAL NATIONAL JAPANESE LATIN MID CAP
FISCAL YEAR ENDED INCOME INCOME RETURN MAGNUM EQUITY AMERICAN GROWTH
JUNE 30, 1999 FUND FUND II(1) FUND FUND FUND(1) FUND FUND(1)
- ----------------- ------ ---------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total brokerage
commissions............... $ 0 $ -- $ 0 $ 369,509 $ -- $ 509,214 $ --
Commissions with Morgan
Stanley................... $ 0 $ -- $ 0 $ 8,443 $ -- $ 7,942 $ --
Percentage of total
commissions.............. 0% --% 0% 2.28% --% 1.56% --%
Commissions with Dean
Witter.................... $ 0 $ -- $ 0 $ 0 $ -- $ 0 $ --
Percentage of total
commissions.............. 0% --% 0% 0% --% 0% --%
Percentage of total value of
brokerage transactions
with Morgan Stanley....... 0% --% 0% 2.09% --% 2.71% --%
Percentage of total value of
brokerage transactions
with Dean Witter.......... 0% --% 0% 0% --% 0% --%
Commissions for research
services.................. $ -- $ -- $ -- $ 369,509 $ -- $ 509,214 $ --
Value of research
transactions.............. $ -- $ -- $ -- $147,219,049 $ -- $172,872,826 $ --
<CAPTION>
TAX
MANAGED WORLDWIDE
GLOBAL HIGH
FISCAL YEAR ENDED FRANCHISE VALUE INCOME
JUNE 30, 1999 FUND FUND FUND
- ----------------- --------- ----- ---------
<S> <C> <C> <C>
Total brokerage
commissions............... $ 4,237 $ 463,294 $ 626
Commissions with Morgan
Stanley................... $ 314 $ 0 $ 0
Percentage of total
commissions.............. 7.41% 0.0% 0%
Commissions with Dean
Witter.................... $ 0 $ 0 $ 0
Percentage of total
commissions.............. 0% 0% 0%
Percentage of total value of
brokerage transactions
with Morgan Stanley....... 6.66% 0% 0%
Percentage of total value of
brokerage transactions
with Dean Witter.......... 0% 0% 0%
Commissions for research
services.................. $ 4,237 $ 458,024 $ 626
Value of research
transactions.............. $1,839,734 $303,327,814 $18,919,240
</TABLE>
- --------------------
(1) Not operational as of June 30, 1999.
44
<PAGE>
<TABLE>
<CAPTION>
EMERGING GLOBAL
AMERICAN ASIAN MARKETS EMERGING EQUITY EUROPEAN FOCUS EQUITY
FISCAL YEAR ENDED VALUE GROWTH DEBT MARKETS GROWTH EQUITY EQUITY ALLOCATION
JUNE 30, 1998 FUND FUND FUND(1) FUND FUND(2) FUND(3) FUND FUND
- ----------------- -------- ------ -------- -------- ------- -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total brokerage
commissions............... $1,863,022 $2,171,340 $ -- $1,122,264 $4,685 $ -- $836,700 $382,680
Commissions with Morgan
Stanley................... $ 0 $ 157,183 $ -- $ 41,792 $ 0 $ -- $ 0 $ 981
Commissions with Dean
Witter.................... $ 0 $ 0 $ -- $ 0 $ 0 $ -- $ 0 $ 0
<CAPTION>
GLOBAL
FISCAL YEAR ENDED EQUITY
JUNE 30, 1998 FUND(4)
- ----------------- -------
<S> <C>
Total brokerage
commissions............... $775,168
Commissions with Morgan
Stanley................... $188,780
Commissions with Dean
Witter.................... $ 0
</TABLE>
<TABLE>
<CAPTION>
HIGH TAX
GLOBAL GROWTH YIELD & INTER- MANAGED
FIXED AND TOTAL NATIONAL JAPANESE LATIN MID CAP GLOBAL
FISCAL YEAR ENDED INCOME INCOME RETURN MAGNUM EQUITY AMERICAN GROWTH FRANCHISE
JUNE 30, 1998 FUND FUND II(1) FUND FUND FUND(1) FUND FUND(1) FUND(3)
- ----------------- ------ ---------- ------- -------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total brokerage
commissions............... $ 0 $ -- $2,940 $243,789 $ -- $1,251,018 $ -- $ --
Commissions with Morgan
Stanley................... $ 0 $ -- $ 0 $ 8,123 $ -- $ 53,140 $ -- $ --
Commissions with Dean
Witter.................... $ 0 $ -- $ 0 $ 0 $ -- $ 0 $ -- $ --
<CAPTION>
WORLDWIDE
HIGH
FISCAL YEAR ENDED VALUE INCOME
JUNE 30, 1998 FUND FUND
- ----------------- ----- ---------
<S> <C> <C>
Total brokerage
commissions............... $475,178 $ 0
Commissions with Morgan
Stanley................... $ 0 $ 0
Commissions with Dean
Witter.................... $ 0 $ 0
</TABLE>
<TABLE>
<CAPTION>
EMERGING GLOBAL
AMERICAN ASIAN MARKETS EMERGING EQUITY EUROPEAN FOCUS EQUITY
FISCAL YEAR ENDED VALUE GROWTH DEBT MARKETS GROWTH EQUITY EQUITY ALLOCATION
JUNE 30, 1997 FUND FUND FUND(1) FUND FUND FUND FUND FUND
- ----------------- -------- ------ -------- -------- ------ -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total brokerage
commissions............... $130,098 $2,757,149 $ -- $922,655 $ -- $ -- $174,610 $118,044
Commissions with Morgan
Stanley................... $ 0 $ 326,044 $ -- $ 79,641 $ -- $ -- $ 0 $ 0
Commissions with Dean
Witter.................... $ 1,302 $ 0 $ -- $ 0 $ -- $ -- $ 168 $ 0
<CAPTION>
GLOBAL
FISCAL YEAR ENDED EQUITY
JUNE 30, 1997 FUND
- ----------------- ------
<S> <C>
Total brokerage
commissions............... $ --
Commissions with Morgan
Stanley................... $ --
Commissions with Dean
Witter.................... $ --
</TABLE>
<TABLE>
<CAPTION>
HIGH TAX
GLOBAL GROWTH YIELD & INTER- MANAGED
FIXED AND TOTAL NATIONAL JAPANESE LATIN MID CAP GLOBAL
FISCAL YEAR ENDED INCOME INCOME RETURN MAGNUM EQUITY AMERICAN GROWTH FRANCHISE
JUNE 30, 1997 FUND FUND II(1) FUND FUND FUND(1) FUND FUND(1) FUND
- ----------------- ------ ---------- ------- -------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total brokerage
commissions............... $ 0 $ -- $ 0 $155,283 $ -- $742,521 $ -- $ --
Commissions with Morgan
Stanley................... $ 0 $ -- $ 0 $ 15,487 $ -- $ 40,849 $ -- $ --
Commissions with Dean
Witter.................... $ 0 $ -- $ 0 $ 0 $ -- $ 0 $ -- $ --
<CAPTION>
WORLDWIDE
HIGH
FISCAL YEAR ENDED VALUE INCOME
JUNE 30, 1997 FUND(5) FUND
- ----------------- ------- ---------
<S> <C> <C>
Total brokerage
commissions............... $ -- $ 0
Commissions with Morgan
Stanley................... $ -- $ 0
Commissions with Dean
Witter.................... $ -- $ 0
</TABLE>
- --------------------
(1) Not operational as of June 30, 1999.
(2) Fund inception May 29, 1998.
(3) Fund inception September 25, 1998.
(4) Fund inception October 29, 1997.
(5) Fund inception July 7, 1997.
45
<PAGE>
SHAREHOLDER SERVICES
The Funds offer a number of shareholder services designed to facilitate
investment in their respective shares at little or no extra cost to the
investor. Below is a description of such services. The following information
supplements the section in each Fund's Prospectus captioned "Shareholder
Services."
INVESTMENT ACCOUNT
Each shareholder of each Fund has an investment account under which the
investor's shares of the Fund are held by Investor Services, the Funds' transfer
agent. Investor Services performs bookkeeping, data processing and
administrative services related to the maintenance of shareholder accounts.
Except as described in the Prospectus and this Statement of Additional
Information, after each share transaction in an account, the shareholder
receives a statement showing the activity in the account. Each shareholder who
has an account in any of the Participating Funds (as defined in the Funds'
Prospectuses) will receive statements quarterly from Investor Services showing
any reinvestments of dividends and capital gain dividends and any other activity
in the account since the preceding statement. Such shareholders also will
receive separate confirmations for each purchase or sale transaction other than
reinvestment of dividends and capital gain dividends. Additional shares may be
purchased at any time through authorized dealers or by mailing a check directly
to Investor Services.
SHARE CERTIFICATES
Generally, a Fund will not issue share certificates. However, upon written
or telephone request to such Fund, a share certificate will be issued
representing shares (with the exception of fractional shares) of the Fund. A
shareholder will be required to surrender such certificates upon an exchange or
redemption of the shares represented by the certificate. In addition, if such
certificates are lost the shareholder must write to Van Kampen Funds Inc. c/o
Investor Services, PO Box 218256, Kansas City, MO 64121-8256, requesting an
"Affidavit of Loss" and obtain a Surety Bond in a form acceptable to Investor
Services. On the date the letter is received, Investor Services will calculate
the fee for replacing the lost certificate equal to no more than 1.50% of the
net asset value of the issued shares, and bill the party to whom the replacement
certificate was mailed.
RETIREMENT PLANS
Eligible investors may establish individual retirement accounts ("IRAs");
SEP; 401(k) plans; Section 403(b)(7) plans in the case of employees of public
school systems and certain non-profit organizations; or other pension or profit
sharing plans. Documents and forms containing detailed information regarding
these plans are available from the Distributor. Van Kampen Trust Company serves
as custodian under the IRA, 403(b)(7) and Money Purchase and Profit Sharing
Keogh plans. Details regarding fees, as well as full plan administration for
profit sharing, pension and 401(k) plans, are available from the Distributor.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS
Shareholders can use ACH to have redemption proceeds deposited
electronically into their bank accounts. Redemption proceeds transferred to a
bank account via the ACH plan are available to be credited to the account on the
second business day following normal payment. In order to utilize this option,
the shareholder's bank must be a member of ACH. In addition, the shareholder
must fill out the appropriate section of the account application. The
shareholder must also include a voided check or deposit slip from the bank
account into which redemption proceeds are to be deposited together with the
completed application. Once Investor Services has received the application and
the voided check or deposit slip, such shareholder's designated bank account,
following any redemption, will be credited with the proceeds of such redemption.
Once enrolled in the ACH plan, a shareholder may terminate participation at any
time by writing Investor Services or by calling (800) 341-2911 ((800) 421-4833
for the hearing impaired).
DIVIDEND DIVERSIFICATION
A shareholder may upon written request, by completing the appropriate
section of the application form accompanying the Prospectus or by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired), elect to have all dividends
and capital gain dividends paid on a class of shares of a Fund invested into
shares of the same class of any Participating Fund so long as the investor has a
pre-existing account for such class of shares of the other fund. Both accounts
must be of the same type, either non-retirement or retirement. If the accounts
are retirement accounts, they must both be for the same class and of the same
type of retirement plan (e.g. IRA, 403(b)(7), 401(k), Keogh) and for the benefit
of the same individual. If a qualified, pre-existing account does not exist, the
shareholder must establish a new account subject to minimum investment and other
requirements of the fund into which distributions would be invested.
Distributions are invested into the selected fund at its net asset value per
share as of the payable date of the distribution.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a monthly, quarterly, semiannual or annual
withdrawal plan if the shareholder owns shares in a single account valued at
$10,000 or more at the next determined net asset value per share at the time the
plan is established. If a
46
<PAGE>
shareholder owns shares in a single account valued at $5,000 or more at the next
determined net asset value per share at the time the plan is established, the
shareholder may establish a quarterly, semiannual or annual withdrawal plan.
This plan provides for the orderly use of the entire account, not only the
income but also the capital, if necessary. Each payment represents the proceeds
of a redemption of shares on which any capital gain or loss will be recognized.
The planholder may arrange for monthly, quarterly, semiannual or annual checks
in any amount, not less than $25. Such a systematic withdrawal plan may also be
maintained by an investor purchasing shares for a retirement plan established on
a form made available by such Fund.
Class B Shareholders and Class C Shareholders who establish a systematic
withdrawal plan may redeem up to 12% annually of the shareholder's initial
account balance without incurring a contingent deferred sales charge. Initial
account balance means the amount of the shareholder's investment at the time the
election to participate in the plan is made.
Under the plan, sufficient shares of the applicable Fund are redeemed to
provide the amount of the periodic withdrawal. Dividends and capital gain
dividends on shares held in accounts with systematic withdrawal plans are
reinvested in additional shares at the next determined net asset value per
share. If periodic withdrawals continuously exceed reinvested dividends and
capital gain dividends, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted. Redemptions made concurrently
with the purchase of additional shares ordinarily will be disadvantageous to the
shareholder because of the duplication of sales charges. Any gain or loss
realized by the shareholder upon redemption of shares is a taxable event. Each
Fund reserves the right to amend or terminate the systematic withdrawal program
upon 30 days' notice to its shareholders.
EXCHANGE PRIVILEGE
All shareholders are limited to eight (8) exchanges per fund during a
rolling 365-day period.
Exchange privileges will be suspended on a particular fund if more than
eight (8) exchanges out of that fund are made by a shareholder during a rolling
365-day period. If exchange privileges are suspended, subsequent exchange
requests during the stated period will not be processed. Exchange privileges
will be restored when the account history shows fewer than eight (8) exchanges
in the rolling 365-day period.
This policy change does not apply to money market funds, systematic exchange
plans, or employer-sponsored retirement plans.
REINSTATEMENT PRIVILEGE
A Class A Shareholder or Class B Shareholder who has redeemed shares of a
Fund may reinstate any portion or all of the net proceeds of such redemption in
Class A Shares of such Fund. A Class C Shareholder who has redeemed shares of
the Fund may reinstate any portion or all of the net proceeds of such redemption
in Class C Shares of the Fund with credit given for any contingent deferred
sales charge paid upon such redemption. Such reinstatement is made at the net
asset value per share (without sales charge) next determined after the order is
received, which must be made within 180 days after the date of the redemption.
Reinstatement at net asset value per share is also offered to participants in
those eligible retirement plans held or administered by Van Kampen Trust Company
for repayment of principal (and interest) on their borrowings on such plans.
REDEMPTION OF SHARES
Redemptions are not made on days during which the New York Stock Exchange
(the "Exchange") is closed. The right of redemption may be suspended and the
payment therefor may be postponed for more than seven days during any period
when (a) the Exchange is closed for other than customary weekends or holidays;
(b) the SEC determines trading on the Exchange is restricted; (c) the SEC
determines an emergency exists as a result of which disposal by a Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for such Fund to fairly determine the value of its net assets; or
(d) the SEC, by order, so permits.
Additionally, if the Board of Directors determines that payment wholly or
partly in cash would be detrimental to the best interests of the remaining
shareholders of a Fund, such Fund may pay the redemption proceeds in whole or in
part by a distribution-in-kind of portfolio securities held by the Fund in lieu
of cash in conformity with applicable rules of the SEC. Shareholders may incur
brokerage charges and a gain or loss for federal income tax purposes upon the
sale of portfolio securities so received in payment of redemptions.
CONTINGENT DEFERRED SALES CHARGE -- CLASS A
As described in the Funds' Prospectuses under "Purchase of Shares --
Class A Shares," there is no sales charge payable on Class A Shares at the time
of purchase on investments of $1 million or more, but a contingent deferred
sales charge ("CDSC -- Class A") may be imposed on certain redemptions made
within one year of purchase. For purposes of the CDSC-Class A, when shares of
one fund are exchanged for shares of another fund, the purchase date for the
shares of the fund exchanged into will be assumed to be the date on which shares
were purchased in the fund from which the exchange was made. If the exchanged
shares themselves are acquired through an exchange, the purchase date is assumed
to carry over from the date of the original election to
47
<PAGE>
purchase shares subject to a CDSC-Class A rather than a front-end load sales
charge. In determining whether a CDSC-Class A is payable, it is assumed that
shares being redeemed first are any shares in the shareholder's account not
subject to a contingent deferred sales charge, followed by shares held the
longest in the shareholder's account.
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGES
As described in the Funds' Prospectuses under "Redemption of Shares,"
redemptions of Class B Shares and Class C Shares will be subject to a contingent
deferred sales charge ("CDSC-Class B and C"). The CDSC-Class B and C is waived
on redemptions of Class B Shares and Class C Shares in the circumstances
described below:
REDEMPTION UPON DEATH OR DISABILITY
A Fund will waive the CDSC-Class B and C on redemptions following the death
or disability of a Class B shareholder and Class C shareholder. An individual
will be considered disabled for this purpose if he or she meets the definition
thereof in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended
(the "Code"), which in pertinent part defines a person as disabled if such
person "is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or to be of long-continued and indefinite duration." While the
Funds do not specifically adopt the balance of the Code's definition which
pertains to furnishing the Secretary of Treasury with such proof as he or she
may require, the Distributor will require satisfactory proof of death or
disability before it determines to waive the CDSC-Class B and C.
In cases of death or disability, the CDSC-Class B and C will be waived where
the decedent or disabled person is either an individual shareholder or owns the
shares as a joint tenant with right of survivorship or is the beneficial owner
of a custodial or fiduciary account, and where the redemption is made within one
year of the death or initial determination of disability. This waiver of the
CDSC-Class B and C applies to a total or partial redemption, but only to
redemptions of shares held at the time of the death or initial determination of
disability.
REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS
A Fund will waive the CDSC-Class B and C when a total or partial redemption
is made in connection with certain distributions from retirement plans. The
CDSC-Class B and C will be waived upon the tax-free rollover or transfer of
assets to another retirement plan invested in one or more Participating Funds;
in such event, as described below, the Fund will "tack" the period for which the
original shares were held on to the holding period of the shares acquired in the
transfer or rollover for purposes of determining what, if any, CDSC-Class B and
C is applicable in the event that such acquired shares are redeemed following
the transfer or rollover. The charge also will be waived on any redemption which
results from the return of an excess contribution pursuant to Section
408(d)(4) or (5) of the Code, the return of excess deferral amounts pursuant to
Code Section 401(k)(8) or 402(g)(2), the financial hardship of the employee
pursuant to United States Treasury Regulation Section 401(k)-1(d)(2), or from
the death or disability of the employee (see Code Section 72(m)(7) and
72(t)(2)(A)(ii)). In addition, the charge will be waived on any minimum
distribution required to be distributed in accordance with Code Section
401(a)(9).
The Funds do not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other retirement plans not specifically described
above.
REDEMPTION PURSUANT TO THE FUND'S SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to participate in a systematic withdrawal plan with
respect to the shareholder's investment in a Fund. Under the systematic
withdrawal plan, a dollar amount of a participating shareholder's investment in
the Fund will be redeemed systematically by the Fund on a periodic basis, and
the proceeds sent to the designated payee of record. The amount to be redeemed
and frequency of the systematic withdrawals will be specified by the shareholder
upon his or her election to participate in the systematic withdrawal plan. The
CDSC-Class B and C will be waived on redemptions made under the systematic
withdrawal plan.
The amount of the shareholder's investment in the Fund at the time the
election to participate in the systematic withdrawal plan is made with respect
to the Fund is hereinafter referred to as the "initial account balance." The
amount to be systematically redeemed from the Fund without the imposition of a
CDSC-Class B and C may not exceed a maximum of 12% annually of the shareholder's
initial account balance. The Fund reserves the right to change the terms and
conditions of the systematic withdrawal plan and the ability to offer the
systematic withdrawal plan.
NO INITIAL COMMISSION OR TRANSACTION FEE
A Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares. See "Purchase of Shares--Waiver of Contingent Deferred Sales
Charge" in the Prospectuses.
48
<PAGE>
INVOLUNTARY REDEMPTIONS OF SHARES
Each Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Funds' Prospectuses.
Prior to such redemptions, shareholders will be notified in writing and allowed
a specified period of time to purchase additional shares to bring the value of
the account up to the required minimum balance. Each Fund will waive the
CDSC-Class B and C upon such involuntary redemption.
REINVESTMENT OF REDEMPTION PROCEEDS
A shareholder who has redeemed Class C Shares of a Fund may reinvest at net
asset value, with credit for any CDSC-Class C paid on the redeemed shares, any
portion or all of his or her redemption proceeds (plus that amount necessary to
acquire a fractional share to round off his or her purchase to the nearest full
share) in Class C Shares of the Fund, provided that the reinvestment is effected
within 180 days after such redemption and the shareholder has not previously
exercised this reinvestment privilege with respect to Class C Shares of the
Fund. Shares acquired in this manner will be deemed to have the original cost
and purchase date of the redeemed shares for purposes of applying the
CDSC-Class C to subsequent redemptions.
REDEMPTION BY ADVISER
A Fund may waive the CDSC-Class B and C when a total or partial redemption
is made by the Adviser with respect to its investments in such Fund.
TAXATION
FEDERAL INCOME TAXATION OF THE FUNDS
The Company and each of the Funds will be treated as separate corporations
for federal income tax purposes. The Funds have elected and qualified (in their
first year of operations), and intend to continue to qualify each year, to be
treated as regulated investment companies under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). To qualify as a regulated
investment company, each Fund must comply with certain requirements of the Code
relating to, among other things, the source of its income and diversification of
its assets.
If a Fund so qualifies and distributes each year to its shareholders at
least 90% of its investment company taxable income (generally taxable income and
net short-term capital gain, but not net capital gain, which is the excess of
net long-term capital gain over net short-term capital loss) and meets certain
other requirements, it will not be required to pay federal income taxes on any
income it distributes to shareholders. Each Fund intends to distribute at least
the minimum amount of investment company taxable income necessary to satisfy the
90% distribution requirement. A Fund will not be subject to federal income tax
on any net capital gain distributed to shareholders.
In order to avoid a 4% excise tax, each Fund will be required to distribute,
by December 31st of each year, at least an amount equal to the sum of (i) 98% of
its ordinary income for such year and (ii) 98% of its capital gain net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31st of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gain net income retained by, and subject to federal income tax in the
hands of, a Fund will be treated as having been distributed.
If a Fund failed to qualify as a regulated investment company or failed to
satisfy the 90% distribution requirement in any taxable year, such Fund would be
taxed as an ordinary corporation on its taxable income (even if such income were
distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year, such Fund may be required to
pay an interest charge on 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to shareholders (less any interest charge). In addition, if
the Fund failed to qualify as a regulated investment company for its first
taxable year or, if immediately after qualifying as a regulated investment
company for any taxable year, it failed to qualify for a period greater than one
taxable year, the Fund would be required to recognize any net built-in gains
(the excess of aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated) in order to qualify as
a regulated investment company in a subsequent year.
Some of the Funds' investment practices are subject to special provisions of
the Code that, among other things, may defer the use of certain losses of a
Fund, affect the holding period of the securities held by such Fund and alter
the character of the gains or losses realized by the Fund. These provisions may
also require the Fund to recognize income or gain without receiving cash with
which to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. Each Fund will monitor its transactions and may make certain tax
elections in order to mitigate the effect of these rules and prevent its
disqualification as a regulated investment company.
Investments of a Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, a
Fund will be required to accrue as income each year a portion of the discount
and to
49
<PAGE>
distribute such income each year in order to maintain its qualification as a
regulated investment company and to avoid income and excise taxes. In order to
generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, such Fund may
have to dispose of securities that it would otherwise have continued to hold.
PASSIVE FOREIGN INVESTMENT COMPANIES. A Fund may invest in the stock of
"passive foreign investment companies" ("PFICs"). A PFIC is a foreign
corporation that, in general, meets either of the following tests: (i) at least
75% of its gross income is passive income or (ii) an average of at least 50% of
its assets produce, or are held for the production of, passive income. Under
certain circumstances, a regulated investment company that holds stock of a PFIC
will be subject to federal income tax on (i) a portion of any "excess
distribution" received on such stock or (ii) any gain from a sale or disposition
of such stock (collectively, "PFIC income"), plus interest on such amounts, even
if the regulated investment company distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the regulated investment company's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders. If a Fund invests in a PFIC and elects to treat the PFIC as
a "qualified electing fund," then in lieu of the foregoing tax and interest
obligation, such Fund would be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain, which most likely would have to be distributed to satisfy the 90%
distribution requirement and the distribution requirement for avoiding income
and excise taxes. In most instances it will be very difficult to make this
election due to certain requirements imposed with respect to the election.
As an alternative to making the above-described election to treat the PFIC
as a qualified electing fund, a Fund may make an election to annually
mark-to-market PFIC stock that it owns (a "PFIC Mark-to-Market Election").
"Marking-to-market," in this context, means recognizing as ordinary income or
loss each year an amount equal to the difference between such Fund's adjusted
tax basis in such PFIC stock and its fair market value. Losses will be allowed
only to the extent of net mark-to-market gain previously included by the Fund
pursuant to the election for prior taxable years. A Fund may be required to
include in its taxable income for the first taxable year in which it makes a
PFIC Mark-to-Market Election an amount equal to the interest charge that would
otherwise accrue with respect to distributions on, or dispositions of, the PFIC
stock. This amount would not be deductible from the Fund's taxable income. The
PFIC Mark-to-Market Election applies to the taxable year for which made and to
all subsequent taxable years, unless the Internal Revenue Service ("IRS")
consents to revocation of the election. By making the PFIC Mark-to-Market
Election, the Fund could ameliorate the adverse tax consequences arising from
its ownership of PFIC stock, but in any particular year may be required to
recognize income in excess of the distributions it receives from the PFIC and
proceeds from the dispositions of PFIC stock.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions of a Fund's investment company taxable income are taxable to
shareholders as ordinary income to the extent of such Fund's earnings and
profits, whether paid in cash or reinvested in additional shares. Distributions
of a Fund's net capital gain as capital gain dividends, if any, are taxable to
shareholders as long-term capital gains regardless of the length of time shares
of such Fund have been held by such shareholders. Distributions in excess of the
Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). For a summary of the maximum tax rates applicable to capital
gains (including capital gain dividends), see "Capital Gains Rates" below.
Tax-exempt shareholders not subject to federal income tax on their income
generally will not be taxed on distributions from a Fund.
Shareholders receiving distributions in the form of additional shares issued
by a Fund will be treated for federal income tax purposes as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the distribution date. The basis of such shares will equal the
fair market value on the distribution date.
Each Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. Some portion of
the distributions from a Fund may be eligible be eligible for the dividends
received deduction for corporations if such Fund receives qualifying dividends
during the year and if certain other requirements of the Code are satisfied.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by a Fund and received
by the shareholders on the December 31st prior to the date of payment. In
addition, certain other distributions made after the close of a taxable year of
a Fund may be "spilled back" and treated as paid by such Fund (except for
purposes of the 4% excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.
Income from investments in foreign securities received by a Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. Shareholders of a Fund may be
entitled to claim United States foreign tax credits with respect to such taxes,
subject to certain provisions and limitations contained in the Code. If more
than 50% in value of a Fund's total assets at the close of its fiscal year
consists of securities of foreign issuers and such Fund meets certain holding
period requirements with respect to the securities, the Fund will be eligible to
file, and may file, elections with the IRS pursuant to which shareholders of
50
<PAGE>
such Fund will be required (i) to include their respective pro rata portions of
such taxes in their United States income tax returns as gross income and (ii) to
treat such respective pro rata portions as taxes paid by them. Each shareholder
will be entitled, subject to certain limitations, either to deduct his pro rata
portion of such foreign taxes in computing his taxable income or to credit them
against his United States federal income taxes. No deduction for such foreign
taxes may be claimed by a shareholder who does not itemize deductions. Each
shareholder of a Fund that may be eligible to file the election described in
this paragraph will be notified annually whether the foreign taxes paid by such
Fund will "pass through" for that year and, if so, such notification will
designate (i) the shareholder's portion of the foreign taxes paid to each
country and (ii) the portion of dividends that represent income derived from
sources within each country. The amount of foreign taxes for which a shareholder
may claim a credit in any year will be subject to an overall limitation such
that the credit may not exceed the shareholder's United States federal income
tax attributable to the shareholder's foreign source taxable income. This
limitation generally applies separately to certain specific categories of
foreign source income including "passive income," which includes dividends and
interest. Because application of the foregoing rules depends on the particular
circumstances of each shareholder, shareholders are advised to consult their tax
advisers.
Certain foreign currency gains or losses attributable to currency exchange
rate fluctuations are treated as ordinary income or loss. Such income or loss
may increase or decrease (or possibly eliminate) a Fund's income available for
distribution. If, under the rules governing the tax treatment of foreign
currency gains and losses, such Fund's income available for distribution is
decreased or eliminated, all or a portion of the dividends declared by the Fund
may be treated for federal income tax purposes as a return of capital or, in
some circumstances, as capital gains. Generally, a shareholder's tax basis in
Fund shares will be reduced to the extent that an amount distributed to such
shareholder is treated as a return of capital.
SALE OF SHARES
The sale of shares (including transfers in connection with a redemption or
repurchase of shares) may be a taxable transaction for federal income tax
purposes. Selling shareholders will generally recognize gain or loss in an
amount equal to the difference between their adjusted tax basis in the shares
and the amount received. If such shares are held as a capital asset, the gain or
loss will be a capital gain or loss. For a summary of the maximum tax rates
applicable to capital gains (including capital gain dividends), see "Capital
Gains Rates" below. Any loss recognized upon a taxable disposition of shares
held for six months or less will be treated as a long-term capital loss to the
extent of any capital gain dividends received with respect to such shares. For
purposes of determining whether shares have been held for six months or less,
the holding period is suspended for any periods during which the shareholder's
risk of loss is diminished as a result of holding one or more other positions in
substantially similar or related property or through certain options or short
sales.
CAPITAL GAINS RATES
The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers investing in a Fund is (i) the
same as the maximum ordinary income tax rate for capital assets held for one
year or less or (ii) 20% for capital assets held for more than one year. The
maximum long-term capital gains rate for corporations is 35%.
NON-U.S. SHAREHOLDERS
A shareholder who is not (i) a citizen or resident of the United States,
(ii) a corporation or partnership created or organized under the laws of the
United States or any state thereof, (iii) an estate, the income of which is
subject to United States federal income taxation regardless of its source or
(iv) a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States fiduciaries who have
the authority to control all substantial decisions of the trust (a "Non-U.S.
Shareholder") generally will be subject to withholding of United States federal
income tax at a 30% rate (or lower applicable treaty rate) on dividends from the
Fund (other than capital gain dividends) that are not "effectively connected"
with a United States trade or business carried on by such shareholder.
Accordingly, investment in certain Funds that invest primarily in debt
securities or securities of foreign issuers is likely to be appropriate for a
Non-U.S. Shareholder only if such person can utilize a foreign tax credit or
corresponding tax benefit in respect of such United States withholding tax.
Non-effectively connected capital gain dividends and gains realized from the
sale of shares will not be subject to United States federal income tax in the
case of (i) a Non-U.S. Shareholder that is a corporation and (ii) an individual
Non-U.S. Shareholder that is not present in the United States for more than 182
days during the taxable year (assuming that certain other conditions are met).
However, certain Non-U.S. Shareholders may nonetheless be subject to backup
withholding on capital gain dividends and gross proceeds paid to them upon the
sale of their shares. See "Backup Withholding" below.
If income from a Fund or gains realized from the sale of shares is
effectively connected with a Non-U.S. Shareholder's United States trade or
business, then such amounts will be subject to United States federal income tax
on a net basis at the tax rates applicable to United States citizens or domestic
corporations. Non-U.S. Shareholders that are corporations may also be subject to
an additional "branch profits tax" with respect to income from the Fund that is
effectively connected with a United States trade or business.
51
<PAGE>
United States Treasury Regulations, effective for payments made after
December 31, 2000, modify the withholding, backup withholding and information
reporting rules, including the procedures to be followed by Non-U.S.
Shareholders in establishing foreign status. Prospective investors should
consult their tax advisers concerning the applicability and effect of such
Treasury Regulations on an investment in shares of a Fund.
The tax consequences to a Non-U.S. Shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Non-U.S. Shareholders may be required to provide appropriate
documentation to establish their entitlement to the benefits of such a treaty.
Foreign investors are advised to consult their tax advisers with respect to the
tax implications of purchasing, holding and disposing of shares of a Fund.
BACKUP WITHHOLDING
A Fund may be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividends and redemption proceeds paid to
non-corporate shareholders. This tax may be withheld from dividends if (i) the
shareholder fails to furnish such Fund with its correct taxpayer identification
number, (ii) the IRS notifies the Fund that the shareholder has failed to
properly report certain interest and dividend income to the IRS and to respond
to notices to that effect or (iii) when required to do so, the shareholder fails
to certify that he or she is not subject to backup withholding. Redemption
proceeds may be subject to withholding under the circumstances described in (i)
above.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a shareholder may be refunded or
credited against such shareholder's United States federal income tax liability,
if any, provided that the required information is furnished to the IRS.
INFORMATION REPORTING
Each Fund must report annually to the IRS and to each shareholder the amount
of dividends paid to such shareholder and the amount, if any, of tax withheld
with respect to such dividends. This information may also be made available to
the tax authorities in a Non-U.S. Shareholder's country of residence.
GENERAL
The federal income tax discussion set forth above is for general information
only. Prospective investors and shareholders should consult their advisors
regarding the specific federal tax consequences of purchasing, holding and
disposing of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.
PERFORMANCE INFORMATION
The Company may from time to time quote various performance figures to
illustrate the Funds' past performance.
Performance quotations by investment companies are subject to rules adopted
by the SEC, which require the use of standardized performance quotations. In the
case of total return, non-standardized performance quotations may be furnished
by the Company but must be accompanied by certain standardized performance
information computed as required by the SEC. Current yield and average annual
compounded total return quotations used by the Company are based on the
standardized methods of computing performance mandated by the SEC. An
explanation of those and other methods used by the Company to compute or express
performance follows.
TOTAL RETURN
From time to time the Funds may advertise total return. Total return figures
are based on historical earnings and are not intended to indicate future
performance. The average annual total return is determined by finding the
average annual compounded rates of return over 1-, 5-, and 10-year periods (or
over the life of the Fund) that would equate an initial hypothetical $1,000
investment to its ending redeemable value. The calculation assumes that all
dividends and distributions are reinvested when paid. The quotation assumes the
amount was completely redeemed at the end of each 1-, 5-, and 10- year period
(or over the life of the Fund) and the deduction of all applicable Company
expenses on an annual basis.
Total return figures are calculated according to the following formula:
<TABLE>
<C> <C> <S>
n
P(1+T) = ERV
</TABLE>
where:
<TABLE>
<C> <C> <S>
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of hypothetical $1,000 payment made
at the beginning of the 1-, 5-, or 10-year periods at the
end of the 1-, 5-, or 10-year periods (or fractional portion
thereof).
</TABLE>
52
<PAGE>
Calculated using the formula above, the average annualized total return,
exclusive of a sales charge or deferred sales charge, for each of the Funds that
commenced operations prior to June 30, 1999 for the one, three and five year
periods ended June 30, 1999 and for the period from the inception of each Fund
through June 30, 1999 are as follows:
<TABLE>
<CAPTION>
ONE-YEAR FIVE-YEAR INCEPTION
INCEPTION PERIOD ENDED PERIOD ENDED THROUGH
DATE JUNE 30, 1999 JUNE 30, 1999 JUNE 30, 1999
--------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Global Equity Allocation Fund
Class A Shares.......................................... 01/04/93 8.41% 15.09% 14.76%
Class B Shares(1)....................................... 08/01/95 7.50 N/A 15.41
Class C Shares(1)....................................... 01/04/93 7.61 14.23 13.92
Global Fixed Income Fund
Class A Shares.......................................... 01/04/93 0.95 5.38 5.44
Class B Shares(1)....................................... 08/01/95 .05 N/A 3.04
Class C Shares(1)....................................... 01/04/93 .05 4.53 4.61
Asian Growth Fund
Class A Shares.......................................... 06/23/93 75.69 (4.76) 0.20
Class B Shares(1)....................................... 08/01/95 74.48 N/A (8.57)
Class C Shares(1)....................................... 06/23/93 74.13 (5.50) (.55)
American Value Fund
Class A Shares.......................................... 10/18/93 17.41 21.59 18.47
Class B Shares(1)....................................... 08/01/95 16.50 N/A 21.74
Class C Shares(1)....................................... 10/18/93 16.55 20.66 17.56
Worldwide High Income Fund
Class A Shares.......................................... 04/21/94 (11.14) 8.87 9.12
Class B Shares(1)....................................... 08/01/95 (11.82) N/A 8.34
Class C Shares(1)....................................... 04/21/94 (11.83) 8.04 8.27
Emerging Markets Fund
Class A Shares.......................................... 07/06/94 23.92 N/A (1.39)
Class B Shares(1)....................................... 08/01/95 22.99 N/A (0.25)
Class C Shares(1)....................................... 07/06/94 23.09 N/A (2.09)
Latin American Fund
Class A Shares.......................................... 07/06/94 3.00 N/A 7.52
Class B Shares(1)....................................... 08/01/95 2.47 N/A 14.69
Class C Shares(1)....................................... 07/06/94 2.28 N/A 6.70
Focus Equity Fund
Class A Shares.......................................... 01/02/96 25.57 N/A 30.80
Class B Shares.......................................... 01/02/96 24.59 N/A 29.85
Class C Shares.......................................... 01/02/96 24.67 N/A 29.85
High Yield & Total Return Fund
Class A Shares.......................................... 05/01/96 1.90 N/A 9.60
Class B Shares.......................................... 05/01/96 1.28 N/A 8.80
Class C Shares.......................................... 05/01/96 1.28 N/A 8.80
International Magnum Fund
Class A Shares.......................................... 07/01/96 (5.54) N/A 6.28
Class B Shares.......................................... 07/01/96 (6.28) N/A 5.48
Class C Shares.......................................... 07/01/96 (6.25) N/A 5.47
Japanese Equity Fund
Class A Shares.......................................... N/A -- -- --
Class B Shares.......................................... N/A -- -- --
Class C Shares.......................................... N/A -- -- --
Growth and Income Fund II
Class A Shares.......................................... N/A -- -- --
Class B Shares.......................................... N/A -- -- --
Class C Shares.......................................... N/A -- -- --
European Equity Fund
Class A Shares.......................................... 9/25/98 N/A N/A 6.75
Class B Shares.......................................... 9/25/98 N/A N/A 6.26
Class C Shares.......................................... 9/25/98 N/A N/A 5.96
Equity Growth Fund
Class A Shares.......................................... 5/29/98 21.90 N/A 23.10
Class B Shares.......................................... 5/29/98 21.14 N/A 22.29
Class C Shares.......................................... 5/29/98 21.04 N/A 22.20
Global Equity Fund
Class A Shares.......................................... 10/29/97 4.05% N/A 9.24%
Class B Shares.......................................... 10/29/97 3.29 N/A 8.45
Class C Shares.......................................... 10/29/97 3.39 N/A 8.45
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
ONE-YEAR FIVE-YEAR INCEPTION
INCEPTION PERIOD ENDED PERIOD ENDED THROUGH
DATE JUNE 30, 1999 JUNE 30, 1999 JUNE 30, 1999
--------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Emerging Markets Debt Fund
Class A Shares.......................................... N/A -- -- --
Class B Shares.......................................... N/A -- -- --
Class C Shares.......................................... N/A -- -- --
Mid Cap Growth Fund
Class A Shares.......................................... N/A -- -- --
Class B Shares.......................................... N/A -- -- --
Class C Shares.......................................... N/A -- -- --
Value Fund
Class A Shares.......................................... 7/7/97 5.83 N/A 6.34
Class B Shares.......................................... 7/7/97 5.02 N/A 5.57
Class C Shares.......................................... 7/7/97 5.13 N/A 5.53
Tax Managed Global Franchise Fund
Class A Shares.......................................... 9/25/98 N/A N/A 21.22
Class B Shares.......................................... 9/25/98 N/A N/A 20.40
Class C Shares.......................................... 9/25/98 N/A N/A 21.40
</TABLE>
- ------------------
The Emerging Markets Debt, Growth and Income II, Japanese Equity and Mid Cap
Growth Funds had not commenced operations in the fiscal year ended June 30,
1999.
(1) The Class B shares listed above were created on May 1, 1995. The original
Class B shares were renamed Class C shares, as listed above, on May 1, 1995.
The Class B shares commenced operations on August 1, 1995.
YIELD FOR CERTAIN FUNDS
From time to time certain of the Funds may advertise yield.
Current yield reflects the income per share earned by a Fund's investments.
Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period.
Current yield figures are obtained using the following formula:
Yield = 2 [ ( a-b
- --cd+ 1) (6) -1]
where:
<TABLE>
<C> <C> <S>
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive income distributions
d = the maximum offering price per share on the last day of the
period
</TABLE>
The respective current yields for the following Funds 30-day period ended
June 30, 1999 were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
FUND NAME SHARES SHARES SHARES
- --------- -------- -------- --------
<S> <C> <C> <C>
Global Fixed Income Fund 2.76% 2.14% 2.14%
Worldwide High Income Fund 11.18% 10.97% 10.97%
High Yield & Total Return Fund 8.52% 8.18% 8.18%
</TABLE>
COMPARISONS
To help investors better evaluate how an investment in a Fund might satisfy
their investment objective, advertisements regarding the Company may discuss
various measures of Fund performance as reported by various financial
publications. Advertisements may also compare performance (as calculated above)
to performance as reported by other investments, indices and averages.
In assessing such comparisons of performance an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to the composition of investments in the Company's Funds, that the
averages are generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the formula used by the
Company to calculate its performance. In addition, there can be no assurance
that the Company will continue this performance as compared to such other
averages.
54
<PAGE>
GENERAL PERFORMANCE INFORMATION
Each Fund's performance will fluctuate, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time. Past
performance is not necessarily indicative of future return. Actual performance
will depend on such variables as portfolio quality, average portfolio maturity,
the type of portfolio instruments acquired, changes in interest rates, portfolio
expenses and other factors. Performance is one basis investors may use to
analyze a Fund as compared to other funds and other investment vehicles.
However, performance of other funds and other investment vehicles may not be
comparable because of the foregoing variables, and differences in the methods
used in valuing their portfolio instruments, computing net asset value and
determining performance.
From time to time, a Fund's performance may be compared to other mutual
funds tracked by financial or business publications and periodicals. For
example, a Fund may quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance. Rankings that compare the performance of the
Funds to one another in appropriate categories over specific periods of time may
also be quoted in advertising.
Fund advertising may include data on historical returns of the capital
markets in the United States compiled or published by research firms such as
Ibbotson Associates of Chicago, Illinois ("Ibbotson"), including returns on
common stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury bills,
the U.S. rate of inflation (based on the Consumer Price Index), and combinations
of various capital markets. The performance of these capital markets is based on
the returns of different indices. The Funds may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with the
security types in any capital market may or may not correspond directly to those
of the Funds. The Funds may also compare their performance to that of other
compilations or indices that may be developed and made available in the future.
The Funds may include in advertisements, charts, graphs or drawings which
illustrate the potential risks and rewards of investment in various investment
vehicles, including but not limited to, foreign securities, stocks, bonds,
treasury bills and shares of a Fund. In addition, advertisements may include a
discussion of certain attributes or benefits to be derived by an investment in a
Fund and/or other mutual funds, shareholder profiles and hypothetical investor
scenarios, timely information on financial management, tax and retirement
planning and various investment alternatives. The Funds may also from time to
time include discussions or illustrations of the effects of compounding in
advertisements. "Compounding" refers to the fact that, if dividends or other
distributions on a Fund investment are reinvested by being paid in additional
Fund shares, any future income or capital appreciation of a Fund would increase
the value, not only of the original investment in the Fund, but also of the
additional Fund shares received through reinvestment.
The Funds may include in its advertisements, discussions or illustrations of
the potential investment goals of a prospective investor (including materials
that describe general principles of investing, such as asset allocation,
diversification, risk tolerance, goal setting, questionnaires designed to help
create a personal financial profile, worksheets used to project savings needs
based on assumed rates of inflation and hypothetical rates of return and action
plans offering investment alternatives), investment management techniques,
policies or investment suitability of a Fund (such as value investing, market
timing, dollar cost averaging, asset allocation, constant ratio transfer,
automatic account rebalancing, the advantages and disadvantages of investing in
tax-deferred and taxable investments). Advertisements and sales materials
relating to a Fund may include information regarding the background and
experience of its portfolio managers; the resources, expertise and support made
available to the portfolio managers and the portfolio managers' goals,
strategies and investment techniques.
The Funds' advertisements may discuss economic and political conditions of
the United States and foreign countries, the relationship between sectors of the
U.S., a foreign, or the global economy and the U.S., a foreign, or the global
economy as a whole and the effects of inflation. The Funds may include
discussions and illustrations of the growth potential of various global markets
including, but not limited to, Africa, Asia, Europe, Latin America, North
America, South America, Emerging Markets and individual countries. These
discussions may include the past performance of the various markets or market
sectors; forecasts of population, gross national product and market performance;
and the underlying data which supports such forecasts. From time to time,
advertisements, sales literature, communications to shareholders or other
materials may summarize the substance of information contained in the Funds'
shareholder reports (including the investment composition of a Fund), as well as
views as to current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believed to be of relevance to a Fund.
The Funds may quote various measures of volatility and benchmark correlation
in advertising. The Funds may compare these measures to those of other funds.
Measures of volatility seek to compare the historical share price fluctuations
or total returns to those of a benchmark. Measures of benchmark correlation
indicate how valid a comparative benchmark may be. Measures of volatility and
correlation may be calculated using averages of historical data. A Fund may also
advertise its current interest rate sensitivity, duration, weighted average
maturity or similar maturity characteristics.
The Funds may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a Fund at periodic intervals, thereby
purchasing fewer
55
<PAGE>
shares when prices are high and more shares when prices are low. While such a
strategy does not assure a profit or guard against loss in a declining market,
the investor's average cost per share can be lower than if fixed numbers of
shares are purchased at the same intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares during periods of
low price levels.
From time to time marketing materials may provide a portfolio manager
update, an Adviser update and discuss general economic conditions and outlooks.
The Funds' marketing materials may also show each Fund's asset class
diversification, top sector holdings and largest holdings. Materials may also
mention how the Distributor believes a Fund compares relative to other Van
Kampen funds. Materials may also discuss the Dalbar Financial Services study
from 1984 to 1994 which studied investor cash flow into and out of all types of
mutual funds. The ten-year study found that investors who bought mutual fund
shares and held such shares outperformed investors who bought and sold. The
Dalbar study conclusions were consistent regardless of whether shareholders
purchased their funds in direct or sales force distribution channels. The study
showed that investors working with a professional representative have tended
over time to earn higher returns than those who invested directly. The
performance of the funds purchased by the investors in the Dalbar study and the
conclusions based thereon are not necessarily indicative of future performance
of such funds or conclusions that may result from similar studies in the future.
The Funds may also be marketed on the Internet.
OTHER INFORMATION
CUSTODY OF ASSETS
The Chase Manhattan Bank serves as the Company's custodian.
SHAREHOLDER REPORTS
Semiannual statements are furnished to shareholders, and annually such
statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 200 East Randolph Drive, Chicago, Illinois
60601, the independent accountants for the Funds, performs an annual audit of
each Fund's financial statements.
LEGAL COUNSEL
Counsel to the Funds is Skadden, Arps, Slate, Meagher & Flom (Illinois).
56
<PAGE>
APPENDIX A -- DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follow:
A S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment -- capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:
2. Nature of and provisions of the obligation:
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.
1. LONG-TERM DEBT -- INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.
AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meets its financial commitment on the obligation is very strong.
A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.
BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
A-1
<PAGE>
the capacity to meet its financial commitment on the obligation.
CC: Debt rated "CC" is currently highly vulnerable to nonpayment.
C: the "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk -- such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain ratings or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
2. COMMERCIAL PAPER
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1: The highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C: This rating is assigned to short-term debt obligations currently vulnerable
to nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired,
A-2
<PAGE>
unless S&P believes that such payments will be made during such grace period.
The "D" rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
3. PREFERRED STOCK
A S&P preferred stock rating is an assessment of the capacity and willingness of
an issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the bond rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
i. Likelihood of payment-capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.
ii. Nature of, and provisions of, the issuer.
iii. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA: This is the highest rating that may be assigned by S&P to a preferred stock
issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA: A preferred stock issue rated "AA" also qualifies as a high-quality, fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA".
A: An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB: An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
BB, B and CCC: Preferred stock rated "BB", "B", and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations.
"BB" indicates the lowest degree of speculation and "CCC" the highest. While
such issues will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC: The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.
C: A preferred stock rated "C" is a nonpaying issue.
D: A preferred stock rated "D" is a nonpaying issue with the issuer in default
on debt instruments.
NR: This indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy. PLUS (+) or MINUS (-): To provide more
detailed indications of preferred stock quality, ratings
A-3
<PAGE>
from "AA" to "CCC" may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
MOODY'S INVESTORS SERVICE -- a brief description of the applicable Moody's
Investors Service (Moody's) rating symbols and their meanings (as published by
Moody's Investors Service) follows:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other market shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
A-4
<PAGE>
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issues:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment or senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes of the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
AAA: An issue which is rated "AAA" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
AA: An issue which is rated "AA" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
A: An issue which is rated "A" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "AAA"
and "AA" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.
A-5
<PAGE>
BAA: An issue which is rated "BAA" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
BA: An issue which is rated "BA" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
B: An issue which is rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
CAA: An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
CA: An issue which is rated "CA" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
C: This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
A-6
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc. --
Van Kampen American Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen American Value Fund (the
"Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the results of
its operations, the changes in its net assets, and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1999 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-1
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------------------
COMMON STOCKS (89.0%)
AEROSPACE (0.8%)
(a)Alliant TechSystems, Inc........ 29,800 $ 2,578
(a)Gulfstream Aerospace Corp....... 64,900 4,385
--------
6,963
--------
BANKING (3.3%)
Bank United Corp. 'A'.............. 105,200 4,228
Comerica, Inc...................... 74,200 4,410
Greenpoint Financial Corp.......... 101,700 3,337
Hudson United Bancorp.............. 117,900 3,610
Mellon Bank Corp................... 143,700 5,227
Mercantile Bankshares Corp......... 44,600 1,578
New England Community Bancorp,
Inc. 'A'......................... 39,800 1,097
Prime Bancshares, Inc.............. 117,200 2,095
TCF Financial Corp................. 67,400 1,879
Western Bancorp.................... 10,000 435
--------
27,896
--------
BUILDING (1.4%)
Vulcan Materials Co................ 36,500 1,761
York International Corp............ 236,900 10,142
--------
11,903
--------
CAPITAL GOODS (11.0%)
(a)Aeroflex, Inc................... 265,900 5,251
(a)Asyst Technologies, Inc......... 193,400 5,790
(a)Atmel Corp...................... 160,600 4,206
Cummins Engine Co., Inc............ 147,300 8,414
(a)Electronics for Imaging, Inc.... 149,500 7,680
Flowserve Corp..................... 218,200 4,132
Manitowoc Co., Inc................. 58,550 2,437
(a)Mentor Graphics Corp............ 346,200 4,436
New Holland N.V.................... 913,400 15,642
(a)PRI Automation, Inc............. 44,100 1,599
(a)Republic Services, Inc. 'A'..... 146,500 3,626
(a)Safety-Kleen Corp............... 244,575 4,433
Stewart & Stevenson Services,
Inc.............................. 618,100 9,426
Tecumseh Products Co. 'A'.......... 47,500 2,877
Titan International, Inc........... 91,000 1,081
(a)Tower Automotive, Inc........... 487,800 12,408
--------
93,438
--------
CHEMICALS (3.3%)
Lubrizol Corp...................... 105,800 2,883
M.A. Hanna Co...................... 214,900 3,532
Quaker Chemical Corp............... 17,400 283
(a)W.R. Grace & Co................. 429,000 7,883
Wellman, Inc....................... 530,300 8,452
Witco Corp......................... 260,300 5,206
--------
28,239
--------
COMMUNICATIONS (6.8%)
A. Schulman, Inc................... 85,500 1,469
ADTRAN, Inc........................ 210,500 7,657
(a)Advanced Radio Telecom Corp..... 1,200 17
(a)Aerial Communications, Inc...... 63,500 857
Cincinnati Bell, Inc............... 143,200 3,571
(a)Digital Microwave Corp.......... 142,400 1,816
(a)General Instrument Corp......... 151,000 6,417
(a)GST Telecommunications, Inc..... 2,000 26
(a)IDT Corp........................ 131,200 2,919
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
(a)ITC DeltaCom, Inc............... 69,600 $ 1,949
(a)Journal Register Co............. 56,400 1,269
(a)Pacific Gateway Exchange,
Inc.............................. 109,400 3,186
(a)Powerwave Technologies, Inc..... 275,000 8,869
(a)QUALCOMM, Inc................... 37,600 5,396
(a)RCN Corp........................ 41,800 1,740
(a)Saville Systems plc ADR......... 66,900 970
(a)VoiceStream Wireless Corp....... 220,200 6,262
(a)Winstar Communications, Inc..... 69,000 3,364
--------
57,754
--------
COMPUTERS (5.0%)
(a)BEA Systems, Inc................ 248,100 7,086
(a)Complete Business Solutions..... 25,500 458
(a)GenRad, Inc..................... 281,100 5,850
(a)Goto.com, Inc................... 17,600 493
(a)Network Solutions, Inc. 'A'..... 20,300 1,606
(a)Networks Associates, Inc........ 358,400 5,264
(a)Pinnacle Systems, Inc........... 404,700 13,608
Ryder Systems, Inc................. 90,200 2,345
(a)SanDisk Corp.................... 10,600 477
(a)SoftNet Systems, Inc............ 112,400 3,133
(a)WorldGate Communications,
Inc.............................. 37,200 1,907
--------
42,227
--------
CONSUMER--DURABLES (1.3%)
Arvin Industries, Inc.............. 15,300 579
Earthgrains Co..................... 90,200 2,328
Michael Foods, Inc................. 72,300 1,699
(a)Splash Technology Holdings,
Inc.............................. 149,900 1,054
(a)Sybron International Corp....... 185,600 5,116
--------
10,776
--------
CONSUMER--RETAIL (6.2%)
(a)Action Performance Cos., Inc.... 55,900 1,845
(a)American Eagle Outfitters,
Inc.............................. 34,000 1,547
(a)Ames Department Stores, Inc..... 137,500 6,273
(a)Ann Taylor Stores Corp.......... 109,000 4,905
Bausch & Lomb, Inc................. 23,400 1,790
(a)Blyth Industries, Inc........... 115,300 3,963
Callaway Golf Co................... 82,500 1,207
Casey's General Stores, Inc........ 140,300 2,104
Claire's Stores, Inc............... 73,500 1,883
(a)Dress Barn, Inc................. 151,800 2,429
(a)Sunglass Hut International,
Inc.............................. 1,031,600 17,731
Tandy Corp......................... 64,400 3,148
(a)Zale Corp....................... 104,800 4,192
--------
53,017
--------
CONSUMER--SERVICE & GROWTH (1.8%)
(a)NOVA Corp....................... 23,000 575
(a)Quanta Services, Inc............ 303,800 13,367
(a)School Specialty, Inc........... 89,900 1,444
--------
15,386
--------
CONSUMER STAPLES (1.9%)
Alpharma, Inc...................... 167,500 5,957
(a)800-JR Cigar, Inc............... 101,400 1,255
(a)Fresh Del Monte Produce, Inc.... 479,400 6,772
(a)General Cigar Holdings, Inc..... 121,400 948
(a)Omega Protein Corp.............. 238,500 1,252
--------
16,184
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
ELECTRIC (1.9%)
(a)Cherry Corp..................... 2,600 $ 37
DPL, Inc........................... 152,600 2,804
(a)Electroglas, Inc................ 70,000 1,400
Florida Progress Corp.............. 26,900 1,111
(a)LTX Corp........................ 115,400 1,536
Potomac Electric Power Co.......... 321,400 9,461
--------
16,349
--------
ENERGY (6.5%)
(a)BJ Services Co.................. 179,400 5,281
Black Hills Corp................... 2,700 63
Energy East Corp................... 129,700 3,372
(a)Global Marine, Inc.............. 761,000 11,748
(a)Grey Wolf, Inc.................. 134,400 336
Illinova Corp...................... 394,400 10,747
MCN Corp........................... 33,700 699
Minnesota Power & Light Co......... 61,100 1,214
Nicor, Inc......................... 14,700 560
(a)Ocean Energy, Inc............... 639,924 6,159
(a)Smith International, Inc........ 126,000 5,473
Suburban Propane Partners, L.P..... 38,000 741
Sunoco, Inc........................ 46,400 1,401
Union Pacific Resources Group,
Inc.............................. 124,200 2,026
Valero Energy Corp................. 197,000 4,223
(a)Wisconsin Energy Corp........... 36,400 912
--------
54,955
--------
ENTERTAINMENT (2.3%)
(a)Bally Total Fitness Holdings
Co............................... 686,500 19,480
(a)Imax Corp....................... 9,300 209
--------
19,689
--------
FINANCIAL SERVICES (4.3%)
(a)Billing Concepts Corp........... 127,500 1,426
Federated Investors, Inc........... 176,900 3,173
Heller Financial, Inc.............. 355,300 9,882
Hospitality Properties, Inc........ 316,500 8,585
Investors Financial Services
Corp............................. 49,800 1,992
(a)Knight/Trimark Group, Inc.
'A'.............................. 86,600 5,283
Reliastar Financial Corp........... 139,600 6,107
--------
36,448
--------
HEALTH CARE (6.1%)
(a)Amerisource Health Corp. 'A'.... 85,900 2,190
(a)Centocor, Inc................... 103,900 4,844
(a)Coulter Pharmaceutical, Inc..... 66,300 1,496
(a)Coventry Health Care, Inc....... 189,900 2,077
(a)Del Global Technologies Corp.... 600,400 5,854
(a)Guilford Pharmaceuticals,
Inc.............................. 181,000 2,308
(a)Henry Schein, Inc............... 113,600 3,600
ICN Pharmaceuticals, Inc........... 198,600 6,392
(a)MedImmune, Inc.................. 21,100 1,430
(a)MedPartners, Inc................ 530,900 4,015
(a)Mid Atlantic Medical Services,
Inc.............................. 265,000 2,617
Teva Pharmaceutical Industries Ltd.
ADR.............................. 100,700 4,934
(a)Trigon Healthcare, Inc.......... 245,700 8,937
(a)VISX, Inc....................... 16,200 1,283
--------
51,977
--------
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL (2.4%)
(a)Cooper Cameron Corp............. 190,700 $ 7,068
(a)Global Industries Ltd........... 396,400 5,079
(a)Nabors Industries, Inc.......... 253,600 6,197
(a)Precision Drilling Corp......... 97,100 1,851
ProLogis Trust..................... 9,600 195
--------
20,390
--------
INSURANCE (1.6%)
Allmerica Financial Corp........... 41,500 2,524
American Medical Security Group.... 241,300 2,081
Everest Reinsurance Holdings,
Inc.............................. 87,400 2,851
Nationwide Health Properties,
Inc.............................. 16,300 311
Reinsurance Group of America,
Inc.............................. 85,400 3,010
XL Capital Ltd. 'A'................ 42,600 2,407
--------
13,184
--------
METALS (2.7%)
Agnico-Eagle Mines Ltd............. 169,600 1,049
Ashann Goldfields.................. 140,300 973
Barrick Gold Corp.................. 158,000 3,061
(a)Lone Star Technologies, Inc..... 27,600 490
(a)Mueller Industries, Inc......... 87,400 2,966
(a)Steel Dynamics, Inc............. 148,400 2,296
(a)Stillwater Mining Co............ 82,950 2,712
Tosco Corp......................... 359,700 9,330
--------
22,877
--------
PAPER & PACKAGING (1.1%)
Boise Cascade Corp................. 23,600 1,015
(a)Valassis Communications, Inc.... 231,050 8,462
--------
9,477
--------
REAL ESTATE (5.4%)
AMB Property Corp.................. 598,900 14,074
Arden Realty Group, Inc............ 210,500 5,184
(a)Cadillac Fairview Corp.......... 21,700 410
Cousins Properties, Inc............ 50,100 1,694
Crescent Real Estate Equities Co.
REIT............................. 235,100 5,584
Developers Diversified Realty
Corp............................. 155,700 2,588
Duke Realty Investment, Inc.
REIT............................. 207,900 4,691
First Washinton Realty Trust,
Inc.............................. 35,000 818
Glenborough Realty Trust, Inc...... 26,500 464
JDN Realty Corp.................... 57,000 1,275
Lasalle Hotel Properties REIT...... 36,100 553
Liberty Property Trust REIT........ 48,600 1,209
Manufactured Home Communities, Inc.
REIT............................. 58,500 1,521
(a)NBTY, Inc....................... 382,700 2,487
Newhall Land & Farming Co., L.P.... 28,800 709
Radian Group, Inc.................. 29,700 1,450
Simon Property Group, Inc.......... 49,300 1,251
(a)Wellsford Properties, Inc....... 5,250 56
--------
46,018
--------
RESTAURANTS (0.6%)
CKE Restaurants, Inc............... 240,100 3,902
(a)Friendly Ice Cream Corp......... 152,700 1,221
--------
5,123
--------
SERVICES (2.6%)
(a)AC Nielsen Corp................. 136,500 4,129
(a)Corinthian Colleges, Inc........ 29,000 547
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
SERVICES (CONT.)
(a)Innotrac Corp................... 48,600 $ 984
Luby's, Inc........................ 190,300 2,855
Ogden Corp......................... 26,800 722
Olsten Corp........................ 305,300 1,927
(a)Snyder Communications, Inc...... 180,700 5,918
(a)Tetra Technologies, Inc......... 525,900 4,832
--------
21,914
--------
TECHNOLOGY (2.6%)
Adobe Systems, Inc................. 21,800 1,791
(a)Barnesandnoble.com, Inc......... 57,300 1,031
(a)Galileo International, Inc...... 223,300 11,933
Galileo Technology Ltd............. 36,300 1,645
(a)Go2Net, Inc..................... 10,900 1,001
(a)Veritas DGC, Inc................ 135,500 2,481
(a)Webtrends, Inc.................. 42,200 1,947
--------
21,829
--------
TRANSPORTATION (4.5%)
Air Express International Corp..... 210,700 5,347
Canadian National Railway Co....... 42,900 2,874
CNF Transportation, Inc............ 75,700 2,905
(a)Gaylord Container Corp. 'A'..... 1,303,100 10,343
(a)Jevic Transportation, Inc....... 15,000 208
(a)Navistar International Corp..... 99,800 4,990
SkyWest, Inc....................... 59,100 1,474
Teekay Shipping Corp............... 70,400 1,241
(a)U.S. Xpress Enterprises, Inc.
'A'.............................. 55,700 595
Wabash National Corp............... 372,800 7,223
Wisconsin Central Transportation
Corp............................. 78,700 1,486
--------
38,686
--------
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
UTILITIES (1.6%)
Allegheny Energy, Inc.............. 84,100 $ 2,697
CalEnergy Co., Inc................. 207,400 7,181
Eastern Entreprises................ 15,500 616
Montana Power Co................... 26,000 1,833
Public Service Co. of New Mexico... 45,200 898
SJW Corp........................... 5,300 422
--------
13,647
--------
TOTAL LONG-TERM INVESTMENTS (89.0%) (COST $674,747)..... 756,346
--------
<CAPTION>
PAR
VALUE
(000)
---------
SHORT-TERM INVESTMENT (12.5%)
<S> <C> <C>
REPURCHASE AGREEMENT (12.5%)
Chase Securities, Inc., 4.55%, dated $ 106,601
6/30/99, due 7/1/99, to be repurchased
at $106,614, collateralized by $111,955
Federal National Mortgage Association,
5.125%, due 2/13/04, valued at $109,546
(COST $106,601)................................... 106,601
--------
TOTAL INVESTMENTS (101.5%) (COST $781,348).............. 862,947
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.5%)........... (12,684)
--------
NET ASSETS (100%)....................................... $850,263
========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
ADR -- American Depositary Receipt
REIT -- Real Estate Investment Trust
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- ---------------------------------------------------------------------------
ASSETS:
Investments at Value (Cost $781,348) (including repurchase
agreement of $106,601).................................. $ 862,947
Cash...................................................... 7
Receivable for:
Investments Sold........................................ 24,576
Fund Shares Sold........................................ 4,800
Dividends............................................... 351
Interest................................................ 14
Other..................................................... 27
---------
Total Assets............................................ 892,722
---------
LIABILITIES:
Payable for:
Investments Purchased................................... 37,629
Fund Shares Redeemed.................................... 3,038
Distribution Fees....................................... 871
Investment Advisory Fees................................ 521
Administrative Fees..................................... 154
Transfer Agent Fees..................................... 93
Shareholder Reporting Expenses.......................... 64
Professional Fees....................................... 40
Custody Fees............................................ 26
Directors' Fees and Expenses............................ 21
Other..................................................... 2
---------
Total Liabilities....................................... 42,459
---------
NET ASSETS................................................ $ 850,263
=========
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 36
Paid in Capital in Excess of Par.......................... 730,047
Unrealized Appreciation on Investments.................... 81,599
Accumulated Net Realized Gain............................. 38,603
Accumulated Net Investment Loss........................... (22)
---------
NET ASSETS.................................................. $ 850,263
=========
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $343,003,465 and 14,545,320 Shares
Outstanding)............................................ $ 23.58
=========
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100 / (100 - maximum sales charge))............. $ 25.02
=========
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $341,908,423 and 14,721,507 Shares
Outstanding)*........................................... $ 23.23
=========
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $165,351,391 and 7,116,164 Shares
Outstanding)*........................................... $ 23.24
=========
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- ---------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 6,513
Interest.................................................. 3,071
---------
Total Income............................................. 9,584
---------
EXPENSES:
Investment Advisory Fees.................................. 5,367
Distribution Fees (Attributed to Classes A, B, and C of
$540, $2,840, and $1,313, respectively)................. 4,693
Administrative Fees....................................... 1,590
Transfer Agent Fees....................................... 326
Custodian Fees............................................ 197
Shareholder Reports....................................... 170
Professional Fees......................................... 82
Filing and Registration Fees.............................. 67
Directors' Fees and Expenses.............................. 16
Other..................................................... 17
---------
Total Expenses........................................... 12,525
---------
Net Investment Income/Loss............................... (2,941)
---------
NET REALIZED GAIN/LOSS ON:
Investments............................................... 44,491
---------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... 16,746
---------
End of the Period
Investments............................................. 81,599
---------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 64,853
---------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. 109,344
---------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ 106,403
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ (2,941) $ (1,791)
Net Realized Gain/Loss.................................... 44,491 45,496
Net Unrealized Appreciation/Depreciation.................. 64,853 4,044
------------- -------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 106,403 47,749
------------- -------------
DISTRIBUTIONS:
In Excess of Net Investment Income:
Class A................................................... -- (122)
Class B................................................... -- (29)
Class C................................................... -- (25)
------------- -------------
-- (176)
------------- -------------
Net Realized Gain:
Class A................................................... (12,659) (5,303)
Class B................................................... (17,437) (5,203)
Class C................................................... (7,981) (3,629)
------------- -------------
(38,077) (14,135)
------------- -------------
Net Decrease in Net Assets Resulting from Distributions... (38,077) (14,311)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 344,367 558,778
Distributions Reinvested.................................. 31,597 12,507
Redeemed.................................................. (211,364) (69,473)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... 164,600 501,812
------------- -------------
Total Increase/Decrease in Net Assets..................... 232,926 535,250
NET ASSETS--Beginning of Period............................. 617,337 82,087
------------- -------------
NET ASSETS--End of Period (Including
accumulated/distributions in excess of net investment
income/loss of $(22) and $(6), respectively).............. $ 850,263 $ 617,337
============= =============
- --------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) Class A:
Shares:
Subscribed............................................. 8,979 9,937
Distributions Reinvested............................... 579 269
Redeemed............................................... (5,327) (1,843)
------------- -------------
Net Increase/Decrease in Class A Shares Outstanding...... 4,231 8,363
============= =============
Dollars:
Subscribed............................................. $ 190,079 $ 205,042
Distributions Reinvested............................... 11,025 5,049
Redeemed............................................... (104,033) (37,455)
------------- -------------
Net Increase/Decrease.................................... $ 97,071 $ 172,636
============= =============
Ending Paid in Capital................................... $ 295,061+ $ 197,990
============= =============
Class B:
Shares:
Subscribed............................................. 4,895 12,495
Distributions Reinvested............................... 769 239
Redeemed............................................... (3,673) (875)
------------- -------------
Net Increase/Decrease in Class B Shares Outstanding...... 1,991 11,859
============= =============
Dollars:
Subscribed............................................. $ 98,965 $ 257,479
Distributions Reinvested............................... 14,494 4,461
Redeemed............................................... (70,265) (18,025)
------------- -------------
Net Increase/Decrease.................................... $ 43,194 $ 243,915
============= =============
Ending Paid in Capital................................... $ 301,083+ $ 257,889
============= =============
Class C:
Shares:
Subscribed............................................. 2,707 4,675
Distributions Reinvested............................... 322 160
Redeemed............................................... (1,921) (671)
------------- -------------
Net Increase/Decrease in Class C Shares Outstanding...... 1,108 4,164
============= =============
Dollars:
Subscribed............................................. $ 55,323 $ 96,257
Distributions Reinvested............................... 6,078 2,997
Redeemed............................................... (37,066) (13,993)
------------- -------------
Net Increase/Decrease.................................... $ 24,335 $ 85,261
============= =============
Ending Paid in Capital................................... $ 134,054+ $ 109,719
============= =============
</TABLE>
- ---------------
<TABLE>
<S> <C>
+ Ending Paid in Capital amounts do not reflect permanent book
to tax differences.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------- -----------------------------
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
------------------------------------------------- -----------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995 1999# 1998# 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD... $ 21.339 $ 17.59 $ 14.63 $ 12.89 $ 11.70 $ 21.196 $ 17.59 $ 14.63
-------- -------- ------- ------- ------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss... 0.006 (0.02) 0.20 0.27 0.27 (0.142) (0.17) 0.09
Net Realized and Unrealized
Gain/Loss... 3.437 4.84 4.05 1.94 1.44 3.371 4.83 4.05
-------- -------- ------- ------- ------- -------- -------- -------
Total from Investment
Operations... 3.443 4.82 4.25 2.21 1.71 3.229 4.66 4.14
-------- -------- ------- ------- ------- -------- -------- -------
DISTRIBUTIONS
Net Investment Income... -- (0.03) (0.20) (0.27) (0.28) -- (0.01) (0.09)
In Excess of Net Investment
Income... -- (0.00)++ (0.00)++ (0.01) -- -- (0.00)++ (0.00)++
Net Realized Gain... (1.200) (1.04) (1.09) (0.19) (0.24) (1.200) (1.04) (1.09)
-------- -------- ------- ------- ------- -------- -------- -------
Total Distributions... (1.200) (1.07) (1.29) (0.47) (0.52) (1.200) (1.05) (1.18)
-------- -------- ------- ------- ------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD... $ 23.582 $ 21.34 $ 17.59 $ 14.63 $ 12.89 $ 23.225 $ 21.20 $ 17.59
======== ======== ======= ======= ======= ======== ======== =======
TOTAL RETURN (1)... 17.41% 28.26% 30.68% 17.41% 15.01% 16.50% 27.30% 29.77%
======== ======== ======= ======= ======= ======== ======== =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's)... $343,004 $220,100 $34,331 $19,674 $20,675 $341,908 $269,836 $15,331
Ratio of Expenses to Average Net
Assets... 1.49% 1.50% 1.50% 1.50% 1.50% 2.24% 2.25% 2.25%
Ratio of Net Investment
Income/Loss to Average Net
Assets... 0.03% (0.09)% 1.25% 1.90% 2.29% (0.72)% (0.84)% 0.40%
Portfolio Turnover Rate... 283% 207% 73% 41% 23% 283% 207% 73%
- ---------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss... $ -- $ 0.02 $ 0.04 $ 0.04 $ 0.05 $ -- $ 0.02 $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net
Assets... -- 1.58% 1.76% 1.81% 1.96% -- 2.33% 2.48%
Net Investment Income/Loss to
Average Net Assets... -- (0.18)% 0.98% 1.59% 1.83% -- (0.93)% 0.14%
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-----------------
AUGUST 1, 1995+
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1996
<S> <C>
- ----------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD... $ 13.37
---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss... 0.15
Net Realized and Unrealized
Gain/Loss... 1.46
---------------
Total from Investment
Operations... 1.61
---------------
DISTRIBUTIONS
Net Investment Income... (0.15)
In Excess of Net Investment
Income... (0.01)
Net Realized Gain... (0.19)
---------------
Total Distributions... (0.35)
---------------
NET ASSET VALUE, END OF PERIOD... $ 14.63
===============
TOTAL RETURN (1)... 12.29%*
===============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's)... $ 2,485
Ratio of Expenses to Average Net
Assets... 2.25%
Ratio of Net Investment
Income/Loss to Average Net
Assets... 1.18%
Portfolio Turnover Rate... 41%*
- -------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss... $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net
Assets... 2.61%
Net Investment Income/Loss to
Average Net Assets... 0.82%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------
YEAR ENDED JUNE 30,
-------------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 21.205 $ 17.59 $ 14.64 $ 12.89 $ 11.69
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................................ (0.142) (0.17) 0.08 0.16 0.17
Net Realized and Unrealized Gain/Loss..................... 3.373 4.83 4.05 1.94 1.44
-------- -------- ------- ------- -------
Total from Investment Operations.......................... 3.231 4.66 4.13 2.10 1.61
-------- -------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income..................................... -- (0.01) (0.09) (0.15) (0.17)
In Excess of Net Investment Income........................ -- (0.00)++ (0.00)++ (0.01) --
Net Realized Gain......................................... (1.200) (1.04) (1.09) (0.19) (0.24)
-------- -------- ------- ------- -------
Total Distributions....................................... (1.200) (1.05) (1.18) (0.35) (0.41)
-------- -------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 23.236 $ 21.20 $ 17.59 $ 14.64 $ 12.89
======== ======== ======= ======= =======
TOTAL RETURN (1)............................................ 16.55% 27.28% 29.67% 16.50% 14.13%
======== ======== ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $165,351 $127,401 $32,425 $21,193 $13,867
Ratio of Expenses to Average Net Assets..................... 2.24% 2.25% 2.25% 2.25% 2.25%
Ratio of Net Investment Income/Loss to Average Net Assets... (0.72)% (0.84)% 0.49% 1.17% 1.54%
Portfolio Turnover Rate..................................... 283% 207% 73% 41% 23%
- -------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment Income/Loss........... $ -- $ 0.02 $ 0.04 $ 0.04 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ -- 2.33% 2.47% 2.58% 2.71%
Net Investment Income/Loss to Average Net Assets.......... -- (0.92)% 0.22% 0.84% 1.08%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Non-Annualized
+ The Fund began offering Class B shares on August 1, 1995.
++ Amount is less than $0.01 per share.
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen American Value Fund (the "Fund") is organized as a separate
diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation, which
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective seeks high
total return by investing in equity securities of small-
to medium-sized corporations. The Fund commenced operations on October 18, 1993.
The Fund currently offers three classes of shares, Class A, Class B, and
Class C shares. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge of 1.00% imposed in the event
of certain redemptions within one year of the purchase. Class B and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
----------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First..................................... 5.00% 1.00%
Second.................................... 4.00% None
Third..................................... 3.00% None
Fourth.................................... 2.50% None
Fifth..................................... 1.50% None
Thereafter................................ None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights. The Fund began offering the current Class B shares on August 1,
1995. Class B shares held prior to May 1, 1995 were renamed Class C shares.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the current bid and asked prices obtained from reputable
brokers. Debt securities purchased with remaining maturities of 60 days or less
are valued at amortized cost, if it approximates market value. All other
securities and assets for which market values are not readily available are
valued at fair value as determined in good faith by the Board of Directors,
although the actual calculations may be done by others.
2. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date.
Interest income is recognized on an accrual basis except where collection is in
doubt. Income, expenses (other than class specific expenses), and realized and
unrealized gains or losses are allocated to each class of shares based upon
their relative net assets. Distributions from the Fund are recorded on the
ex-distribution date.
4. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
Net capital losses incurred after October 31 and within the taxable year are
deemed to arise on the first business day of the Fund's next taxable year. For
the period from November 1, 1998 to June 30, 1999 the Fund incurred and elected
to defer until July 1, 1999, for U.S. Federal income tax purposes, net capital
losses of approximately $599,000.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- -------- -------- -------- -------------
<S> <C> <C> <C>
$783,848 $105,035 $(25,936) $79,099
</TABLE>
5. Distribution of Income and Gains: The amount and the character of income and
capital gain distributions to be paid by the Fund are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, and paid in capital. For the year ended June
30, 1999, approximately $2,810,000 has been reclassified from accumulated net
realized gain/loss and approximately $115,000 has been reclassified from paid in
capital, totaling approximately $2,925,000 posted to accumulated net investment
income/loss.
F-9
<PAGE>
VAN KAMPEN AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.), Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), and Miller Anderson & Sherrerd LLP, wholly
owned subsidiaries of Morgan Stanley Dean Witter & Co., provide the Fund with
investment advisory services at a fee paid monthly and calculated at the annual
rates based on average daily net assets as indicated below. The Adviser has
agreed to reduce advisory fees payable to it and to reimburse the Fund, if
necessary, if the annual operating expenses, as defined, expressed as a
percentage of average daily net assets, exceed the maximum ratios indicated as
follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- ------------ -------------- --------------
<S> <C> <C>
0.85% 1.50% 2.25%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$31,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides the
Fund with administrative services pursuant to an administrative agreement for a
monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the Fund, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $1,637,168 for Class A shares and deferred sales charges of $11,295,
$1,191,362, and $79,195 for Class A shares, Class B shares, and Class C shares,
respectively.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $1,731,740,000 and sales of approximately
$1,633,241,000 of investment securities other than long-term U.S. government
securities and short-term investments. There were no purchases or sales of
long-term U.S. government securities.
F-10
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Asian Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Asian Growth Fund (the
"Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the results of
its operations, the changes in its net assets and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1999 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-11
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------------------
COMMON STOCKS (91.5%)
HONG KONG (30.1%)
Asia Satellite Telecommunications
Holdings Ltd...................... 127,000 $ 299
Axa China Region Ltd................ 904,700 723
Cathay Pacific Airways Ltd.......... 920,000 1,411
Cheung Kong Holdings Ltd............ 733,000 6,519
China Telecom Ltd................... 458,000 1,272
Citic Pacific Ltd................... 396,400 1,265
CLP Holdings Ltd.................... 260,200 1,264
Cosco Pacific Ltd................... 776,200 645
Dao Heng Bank Group Ltd............. 384,900 1,726
Hengan International Group Co.,
Ltd............................... 1,220,000 617
Hong Kong & China Gas Co., Ltd...... 15,590 23
Hong Kong Telecommunications Ltd.... 2,432,900 6,319
Hutchison Whampoa Ltd............... 1,186,300 10,742
Johnson Electric Holdings Ltd....... 118,000 487
Kerry Properties Ltd................ 341,000 451
Li & Fung Ltd....................... 735,000 1,762
New World Development Co., Ltd...... 536,000 1,606
New World Infrastructure Ltd........ 281,550 530
(a)Shandong International Power
Development Co., Ltd.............. 1,626,000 367
SmarTone Telecommunications Holdings
Ltd............................... 572,900 2,038
Sun Hung Kai Properties Ltd......... 766,000 6,985
Swire Pacific Ltd. 'A'.............. 408,000 2,019
Television Broadcasts Ltd........... 505,000 2,369
Yanzhou Coal Mining Co., Ltd. 'H'... 1,052,000 377
--------
51,816
--------
INDIA (1.4%)
Castrol Ltd......................... 100 1
Digital Equipment Ltd............... 32,000 315
Hero Honda Motors Ltd............... 1,477 37
ICICI Ltd........................... 550,000 931
NIIT Ltd............................ 5,350 251
Reckitt & Coleman of India Ltd...... 550 6
SmithKline Beecham Consumer
Healthcare Ltd.................... 50 1
Software Solution Integrated Ltd.... 25,000 249
Tata Infotech Ltd................... 24,363 597
--------
2,388
--------
INDONESIA (2.2%)
PT Gudang Garam Tbk (Foreign)....... 570,500 1,549
PT Semen Gresik Tbk................. 270,500 589
PT Telekomunikasi Indonesia ADR..... 113,184 1,408
Unilever Indonesia Tbk (Foreign).... 34,200 199
--------
3,745
--------
KOREA (20.1%)
Daewoo Securities, Co............... 33,290 647
Good Morning Securities Co., Ltd.... 67,740 418
Hana Bank........................... 51,740 760
Hankuk Glass Industry Co., Ltd...... 16,740 448
Housing & Commercial Bank........... 57,530 1,814
Kookmin Bank........................ 33,060 671
(a)Kookmin Bank GDR................. 13,600 277
Koram Bank.......................... 59,960 751
Korea Chemical Co., Ltd............. 8,860 796
Korea Electric Power Corp........... 22,340 928
Korea Electric Power Corp. ADR...... 239,490 4,910
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Korea Exchange Bank................. 138,110 $ 776
(b)Korea Telecom Corp............... 20,220 1,342
(a)Korea Telecom Corp. ADR.......... 97,900 3,916
LG Chemical Ltd..................... 17,390 473
LG Electronics...................... 37,810 1,045
Pohang Iron & Steel Co., Ltd. ADR... 44,900 1,510
(b)Pohang Iron & Steel Co., Ltd.
(Foreign)......................... 17,579 2,164
Samsung Electro-Mechanics Co........ 36,152 1,249
Samsung Electronics Co. (Foreign)... 49,376 5,418
Samsung Fire & Marine Insurance..... 2,642 1,860
(b)SK Telecom Co., Ltd.............. 604 829
SK Telecom Co., Ltd. ADR............ 39,920 679
SK Corp............................. 35,799 1,030
--------
34,711
--------
MALAYSIA (5.4%)
Carlsberg Brewery Malaysia Bhd...... 542,000 1,541
Commerce Asset-Holding Bhd.......... 199,000 492
Malayan Banking Bhd................. 445,400 1,336
Nestle Bhd.......................... 262,000 1,034
Public Bank Bhd..................... 643,000 489
Rothmans of Pall Mall Bhd........... 318,000 2,406
Telekom Malaysia Bhd................ 563,000 2,104
--------
9,402
--------
PHILIPPINES (2.1%)
(a)La Tondena Distillers, Inc....... 452,850 537
Manila Electric Co. 'B'............. 149,230 538
Philippine Long Distance Telephone
Co. 'B' ADR....................... 18,090 553
(a)Philippine National Bank......... 150,680 409
San Miguel Corp. 'B'................ 509,905 1,114
SM Prime Holdings, Inc. 'B'......... 1,891,680 428
--------
3,579
--------
SINGAPORE (9.9%)
(a)Asia Pulp & Paper Co., Ltd.
ADR............................... 40,500 390
City Developments Ltd............... 203,000 1,300
Gul Technologies.................... 333,000 317
NatSteel Electronics Ltd............ 378,000 1,654
Oversea-Chinese Banking Corp., Ltd.
(Foreign)......................... 204,000 1,702
Overseas Union Bank Ltd.
(Foreign)......................... 155,000 747
Parkway Holdings Ltd................ 210,000 518
Rothmans Industries Ltd............. 49,000 412
Sembcorp Logistics Ltd.............. 220,900 869
(a)Singapore Airlines Ltd........... 3,184,000 2,843
Singapore Press Holdings Ltd........ 144,200 2,456
Singapore Technology Engineering
Ltd............................... 553,000 627
United Overseas Bank Ltd.
(Foreign)......................... 187,000 1,307
Venture Manufacturing Ltd........... 256,800 1,976
--------
17,118
--------
TAIWAN (17.1%)
(a)Advanced Semiconductor
Engineering, Inc.................. 210,000 709
(a)Asia Cement Corp................. 360,000 323
Asustek Computer, Inc............... 268,396 3,025
Bank Sinopac........................ 910,000 634
Cathay Life Insurance Co., Ltd...... 226,000 812
China Steel Corp.................... 1,170,100 884
China Steel Corp. GDR............... 21,105 327
(a)Chinatrust Business Bank......... 654,000 786
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Compal Electronics, Inc............. 339,218 $ 1,334
(a)Compeq Manufacturing Co., Ltd.... 62,700 355
(a)CTCI Corp........................ 284,000 337
(a)E. Sun Commercial Bank........... 853,000 475
(a)Evergreen Marine Corp............ 255,000 319
(a)Far Eastern International Bank... 860,000 315
(a)Far Eastern Textile Ltd.......... 1,117,343 1,660
First Commercial Bank............... 167,000 318
Formosa Chemicals & Fibre Corp...... 404,000 493
(a)Hon Hai Precision Industry....... 338,400 3,059
Hua Nan Commercial Bank............. 158,000 313
International Commercial Bank of
China............................. 714,000 924
Nan Ya Plastic Corp................. 713,000 1,181
(a)President Chain Store Corp....... 199,000 675
Quanta Computer Inc................. 57,120 684
Siliconware Precision Industries
Co................................ 327,696 624
(a)Taishin International Bank....... 1,178,000 875
(a)Taiwan Semiconductor Co.......... 1,565,935 5,987
(a)United Micro Electronics Corp.,
Ltd............................... 591,650 1,273
United World Chinese Commercial
Bank.............................. 302,000 467
Yang Ming Marine Transport.......... 481,000 313
--------
29,481
--------
THAILAND (3.2%)
Advanced Information Services Public
Co., Ltd. (Foreign)............... 99,800 1,353
BEC World Public Co., Ltd.
(Foreign)......................... 151,100 942
Delta Electronics Public Co., Ltd.
(Foreign)......................... 78,855 663
(b)Golden Land Property Development
Public Co., Ltd................... 745,000 439
Shin Corp. Public Co., Ltd.
(Foreign)......................... 40,300 188
Siam Cement Public Co., Ltd.
(Foreign)......................... 22,900 695
Siam City Cement Public Co., Ltd.
(Foreign)......................... 162,733 671
Thai Farmer's Bank Public Co., Ltd.
(Foreign)......................... 189,300 585
--------
5,536
--------
TOTAL COMMON STOCKS..................................... 157,776
--------
PREFERRED STOCK (0.1%)
THAILAND (0.1%)
(a)Siam Commercial Bank Public Co.,
Ltd. 5.25% (Foreign).............. 114,300 163
--------
<CAPTION>
NO. OF
RIGHTS
----------
RIGHT (0.0%)
<S> <C> <C>
KOREA (0.0%)
(a,b)SK Telecom Co., Ltd., expiring
7/27/99........................... 604 76
--------
<CAPTION>
NO. OF
WARRANTS
----------
WARRANTS (1.2%)
<S> <C> <C>
HONG KONG (0.3%)
(a)Credit Lyonnais HSBC Holdings,
expiring 10/13/99................. 919,000 462
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF VALUE
WARRANTS (000)
<S> <C> <C>
- --------------------------------------------------------------------
PHILIPPINES (0.2%)
(a)Jollibee Food, expiring
3/24/03........................... 536,000 $ 275
--------
SINGAPORE (0.3%)
(a)Oversea-Chinese Banking Corp.,
expiring 3/28/02.................. 708,000 528
--------
THAILAND (0.4%)
(a)Siam Commercial Bank Public Co.,
Ltd., expiring 5/10/02............ 1,066,300 686
--------
TOTAL WARRANTS........................................ 1,951
--------
<CAPTION>
PAR
VALUE
(000)
----------
CONVERTIBLE DEBENTURE (0.7%)
<S> <C> <C>
SINGAPORE (0.7%)
Finlayson Global Corp. 0.00%,
2/19/04........................... $ 780 1,178
--------
TOTAL LONG-TERM INVESTMENTS (93.5%) (COST $115,649)..... 161,144
--------
SHORT-TERM INVESTMENT (7.5%)
REPURCHASE AGREEMENT (7.5%)
Chase Securities, Inc., 4.55%, dated 12,988
6/30/99, due 7/1/99, to be repurchased
at $12,990 collateralized by $13,640
Federal National Mortgage
Association, 5.125%, due 2/13/04,
valued at $13,347 (COST $12,988)................ 12,988
--------
TOTAL INVESTMENTS IN SECURITIES (101.0%) (COST
$128,637)............................................... 174,132
--------
FOREIGN CURRENCY (0.7%) (COST $1,318)................... 1,310
--------
TOTAL INVESTMENTS (101.7%) (COST $129,955).............. 175,442
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.7%)........... (3,023)
--------
NET ASSETS (100%)....................................... $172,419
========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
(b) -- Security valued at fair value -- see note A-1 to
financial statements.
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
</TABLE>
- ----------------------------------------------------------------
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------- -------- ----------
<S> <C> <C>
Finance................... $ 44,637 25.9%
Services.................. 37,762 21.9
Capital Equipment......... 26,971 15.6
Consumer Goods............ 17,049 9.9
Multi-Industry............ 14,345 8.3
Materials................. 12,350 7.2
Energy.................... 8,030 4.7
-------- ----
$161,144 93.5%
======== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- ---------------------------------------------------------------------------
ASSETS:
Investments in Securities, at Value (Cost $128,637)....... $ 174,132
Foreign Currency (Cost $1,318)............................ 1,310
Receivable for:
Fund Shares Sold........................................ 2,168
Dividends............................................... 468
Investments Sold........................................ 327
Foreign Withholding Tax Reclaim......................... 41
Interest Receivable..................................... 2
Other..................................................... 38
---------
Total Assets.......................................... 178,486
---------
LIABILITIES:
Payable for:
Investments Purchased................................... 3,488
Fund Shares Redeemed.................................... 796
Deferred Country Tax.................................... 670
Bank Overdraft.......................................... 552
Custody Fees............................................ 157
Distribution Fees....................................... 155
Investment Advisory Fees................................ 99
Shareholder Reporting Expenses.......................... 35
Professional Fees....................................... 35
Administrative Fees..................................... 32
Transfer Agent Fees..................................... 32
Directors' Fees and Expenses............................ 14
Other..................................................... 2
---------
Total Liabilities..................................... 6,067
---------
NET ASSETS.................................................. $ 172,419
=========
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 15
Paid in Capital in Excess of Par.......................... 254,175
Net Unrealized Appreciation on Investments and Foreign
Currency Translations*.................................. 44,850
Accumulated Net Investment Loss........................... (25)
Accumulated Net Realized Loss............................. (126,596)
---------
NET ASSETS.................................................. $ 172,419
=========
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $88,808,301 and 7,733,211 Shares
Outstanding)............................................ $ 11.48
=========
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100/ (100 - maximum sales charge)).............. $ 12.18
=========
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $42,905,212 and 3,897,898 Shares
Outstanding)**.......................................... $ 11.01
=========
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $40,705,672 and 3,709,699 Shares
Outstanding)**.......................................... $ 10.97
=========
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Net of accrual for deferred country tax of approximately
U.S. $632,000.
** Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-14
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 2,517
Interest.................................................. 163
Less Foreign Taxes Withheld............................... (195)
--------
Total Income............................................. 2,485
--------
EXPENSES:
Investment Advisory Fees.................................. 1,108
Distribution Fees (Attributed to Classes A, B, and C of
$130, $291, and $295, respectively)..................... 716
Administrative Fees....................................... 287
Custodian Fees............................................ 250
Shareholder Reports....................................... 83
Transfer Agent Fees....................................... 82
Professional Fees......................................... 39
Filing & Registration Fees................................ 36
Interest Expense.......................................... 36
Country Tax Expense....................................... 28
Directors' Fees and Expenses.............................. 13
Other..................................................... 17
--------
Total Expenses........................................... 2,695
Less Expense Reductions.................................. (85)
--------
Net Expenses............................................. 2,610
--------
Net Investment Income/Loss.................................. (125)
--------
NET REALIZED GAIN/LOSS ON:
Investments............................................... 280
Foreign Currency Transactions............................. (285)
--------
Net Realized Gain/Loss.................................. (5)
--------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... (23,483)
--------
End of the Period:
Investments............................................. 45,495
Foreign Currency Translations........................... (645)
--------
44,850
--------
Net Unrealized Appreciation/Depreciation During the
Period...................................................... 68,333
--------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................... 68,328
--------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................................. $ 68,203
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ (125) $ (1,379)
Net Realized Gain/Loss.................................... (5) (117,195)
Net Unrealized Appreciation/Depreciation.................. 68,333 (58,612)
----------------- -------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 68,203 (177,186)
----------------- -------------
DISTRIBUTIONS:
In Excess of Net Realized Gain:
Class A................................................... -- (135)
Class B................................................... -- (60)
Class C................................................... -- (84)
----------------- -------------
Net Decrease in Net Assets Resulting from Distributions... -- (279)
----------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 84,305 114,898
Distributions Reinvested.................................. -- 258
Redeemed.................................................. (82,166) (188,300)
----------------- -------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... 2,139 (73,144)
----------------- -------------
Total Increase/Decrease in Net Assets..................... 70,342 (250,609)
NET ASSETS--Beginning of Period............................. 102,077 352,686
----------------- -------------
NET ASSETS--End of Period (Including accumulated net
investment loss of $(25) and $(1,200), respectively)...... $ 172,419 $ 102,077
================= =============
- -------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) Class A:
--------
Shares:
Subscribed................................................ 8,906 9,205
Distributions Reinvested.................................. -- 15
Redeemed.................................................. (8,391) (12,556)
----------------- -------------
Net Increase/Decrease in Class A Shares Outstanding......... 515 (3,336)
================= =============
Dollars:
Subscribed................................................ $ 70,587 $ 80,960
Distributions Reinvested.................................. -- 125
Redeemed.................................................. (61,673) (123,834)
----------------- -------------
Net Increase/Decrease....................................... $ 8,914 $ (42,749)
================= =============
Ending Paid in Capital...................................... $ 121,936+ $ 113,022
================= =============
Class B:
- -------
Shares:
Subscribed................................................ 944 2,181
Distributions Reinvested.................................. -- 7
Redeemed.................................................. (1,189) (1,929)
----------------- -------------
Net Increase/Decrease in Class B Shares Outstanding......... (245) 259
================= =============
Dollars:
Subscribed................................................ $ 7,734 $ 19,723
Distributions Reinvested.................................. -- 55
Redeemed.................................................. (8,813) (19,925)
----------------- -------------
Net Increase/Decrease....................................... $ (1,079) $ (147)
================= =============
Ending Paid in Capital...................................... $ 62,911+ $ 63,990
================= =============
Class C:
- -------
Shares:
Subscribed................................................ 807 1,702
Distributions Reinvested.................................. -- 10
Redeemed.................................................. (1,680) (4,222)
----------------- -------------
Net Increase/Decrease in Class C Shares Outstanding......... (873) (2,510)
================= =============
Dollars:
Subscribed................................................ $ 5,984 $ 14,215
Distributions Reinvested.................................. -- 78
Redeemed.................................................. (11,680) (44,541)
----------------- -------------
Net Increase/Decrease....................................... $ (5,696) $ (30,248)
================= =============
Ending Paid in Capital...................................... $ 70,942+ $ 76,638
================= =============
</TABLE>
- ---------------
+ Ending Paid in Capital amounts do not reflect permanent book to tax
differences.
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------
YEAR ENDED JUNE 30,
-----------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 6.529 $ 16.62 $ 17.15 $ 16.42 $ 15.50
------- ------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................... 0.022 (0.04) (0.06) (0.04) --
Net Realized and Unrealized Gain/Loss........ 4.933 (10.03) (0.14) 0.77 1.43
------- ------- -------- -------- --------
Total From Investment Operations............. 4.955 (10.07) (0.20) 0.73 1.43
------- ------- -------- -------- --------
DISTRIBUTIONS
Net Realized Gain............................ -- -- -- -- (0.49)
In Excess of Net Realized Gain............... -- (0.02) (0.33) -- (0.02)
------- ------- -------- -------- --------
Total Distributions.......................... -- (0.02) (0.33) -- (0.51)
------- ------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD................. $11.484 $ 6.53 $ 16.62 $ 17.15 $ 16.42
======= ======= ======== ======== ========
TOTAL RETURN (1)............................... 75.69% (60.57)% (1.10)% 4.45% 9.50%
======= ======= ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's).............. $88,808 $47,128 $175,440 $248,009 $178,667
Ratio of Expenses to Average Net Assets........ 1.95% 1.90% 1.84% 1.88% 1.90%
Ratio of Net Investment Income/Loss to Average
Net Assets................................... 0.28% (0.39)% (0.31)% (0.16)% 0.04%
Portfolio Turnover Rate........................ 138% 130% 74% 38% 34%
- ------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During
the Period
Per Share Benefit to Net Investment
Income/Loss................................ $ 0.01 $ 0.01 $ -- $ -- $ --
Ratios Before Expense Limitation:
Expenses to Average Net Assets............... 2.03% 2.21% -- -- --
Net Investment Income/Loss to Average Net
Assets..................................... 0.20% (0.53)% -- -- --
Ratio of Net Expenses to Average Net Assets
excluding country tax expense and interest
expense...................................... 1.90% 1.90% -- -- --
- ------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-----------------------------------------------
YEAR ENDED JUNE 30,
--------------------------- AUGUST 1, 1995+
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 TO JUNE 30, 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 6.306 $ 16.17 $ 16.81 $ 16.51
------- ------- ------- ---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................... (0.033) (0.10) (0.16) (0.03)
Net Realized and Unrealized Gain/Loss........ 4.734 (9.74) (0.15) 0.33
------- ------- ------- ---------------
Total From Investment Operations............. 4.701 (9.84) (0.31) 0.30
------- ------- ------- ---------------
DISTRIBUTIONS
Net Realized Gain............................ -- -- (0.33) --
In Excess of Net Realized Gain............... -- (0.02) -- --
------- ------- ------- ---------------
Total Distributions.......................... -- (0.02) (0.33) --
------- ------- ------- ---------------
NET ASSET VALUE, END OF PERIOD................. $11.007 $ 6.31 $ 16.17 $ 16.81
======= ======= ======= ===============
TOTAL RETURN (1)............................... 74.48% (60.89)% (1.79)% 1.82%*
======= ======= ======= ===============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's).............. $42,905 $26,126 $62,786 $ 52,853
Ratio of Expenses to Average Net Assets........ 2.70% 2.65% 2.59% 2.61%
Ratio of Net Investment Income/Loss to Average
Net Assets................................... (0.44)% (1.01)% (1.04)% (0.52)%
Portfolio Turnover Rate........................ 138% 130% 74% 38%*
- ------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During
the Period
Per Share Benefit to Net Investment
Income/Loss................................ $ 0.01 $ 0.02 $ -- $ --
Ratios Before Expense Limitation:
Expenses to Average Net Assets............... 2.78% 2.96% -- --
Net Investment Income/Loss to Average Net
Assets..................................... (0.52)% (1.15)% -- --
Ratio of Net Expenses to Average Net Assets
excluding country tax expense and interest
expense...................................... 2.65% 2.65% -- --
- ------------------------------------------------------------------------------------------------------ ---------------------------
- --------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 6.290 $ 16.14 $ 16.78 $ 16.19 $ 15.40
------- ------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................................ (0.035) (0.12) (0.21) (0.13) (0.12)
Net Realized and Unrealized Gain/Loss..................... 4.718 (9.71) (0.10) 0.72 1.42
------- ------- -------- -------- --------
Total From Investment Operations.......................... 4.683 (9.83) (0.31) 0.59 1.30
------- ------- -------- -------- --------
DISTRIBUTIONS
Net Realized Gain......................................... -- -- -- -- (0.49)
In Excess of Net Realized Gain............................ -- (0.02) (0.33) -- (0.02)
------- ------- -------- -------- --------
Total Distributions....................................... -- (0.02) (0.33) -- (0.51)
------- ------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.............................. $10.973 $ 6.29 $ 16.14 $ 16.78 $ 16.19
======= ======= ======== ======== ========
TOTAL RETURN (1)............................................ 74.13% (60.88)% (1.79)% 3.64% 8.71%
======= ======= ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $40,706 $28,823 $114,460 $168,070 $139,497
Ratio of Expenses to Average Net Assets..................... 2.70% 2.65% 2.59% 2.63% 2.63%
Ratio of Net Investment Income/Loss to Average Net Assets... (0.48)% (1.17)% (1.06)% (0.94)% (0.77)%
Portfolio Turnover Rate..................................... 138% 130% 74% 38% 34%
- --------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income/Loss........... $ 0.01 $ 0.01 $ -- $ -- $ --
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 2.78% 2.96% -- -- --
Net Investment Income/Loss to Average Net Assets.......... (0.56)% (1.31)% -- -- --
Ratio of Net Expenses to Average Net Assets excluding
country tax expense and interest expense.................. 2.65% 2.65% -- -- --
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Non-Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Asian Growth Fund (the "Fund") is organized as a separate
diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation which
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective seeks long-term
capital appreciation through investment primarily in equity securities of Asian
issuers, excluding Japan. The Fund commenced operations on June 23, 1993.
The Fund currently offers three classes of shares, Class A, Class B, and
Class C shares. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge of 1.00% imposed in the event
of certain redemptions within one year of the purchase. Class B and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
----------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First..................................... 5.00% 1.00%
Second.................................... 4.00% None
Third..................................... 3.00% None
Fourth.................................... 2.50% None
Fifth..................................... 1.50% None
Thereafter................................ None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights. The Fund began offering the current Class B shares on August 1,
1995. Class B shares held prior to May 1, 1995 were renamed Class C shares.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the current bid and asked prices obtained from reputable
brokers. Bonds and other fixed income securities may be valued according to the
broadest and most representative market. In addition, bonds and other fixed
income securities may be valued on the basis of prices provided by a pricing
service which takes into account institutional size trading in similar groups of
securities. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. All other
securities and assets for which market values are not readily available are
valued at fair value as determined in good faith by the Board of Directors,
although the actual calculations may be done by others.
2. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date, net
of applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on an accrual basis except where
collection is in doubt. Income, expenses (other than class specific expenses),
and realized and unrealized gains or losses are allocated to each class of
shares based upon their relative net assets. Distributions from the Fund are
recorded on the ex-distribution date.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices. Purchases and sales of portfolio securities are translated at the
rate of exchange prevailing when such securities were purchased or sold. Income
and expenses are translated at rates prevailing when accrued. Realized and
unrealized gains and losses on securities are not segregated for financial
reporting purposes from amounts arising from
F-18
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
changes in the market prices of securities. Realized gains and losses on foreign
currency includes the net realized amount from the sale of the currency and the
amount realized between trade date and settlement date on security and income
transactions. However, the foreign currency portion of gains and losses realized
on sales and maturities of foreign denominated debt securities is treated as
ordinary income for U.S. Federal income tax purposes.
The net assets of the Fund may include issuers located in emerging markets.
There are certain risks inherent in these investments not typically associated
with investments in the United States, including the smaller size of the markets
themselves, lesser liquidity, greater volatility, and potentially less publicly
available information. Emerging markets may be subject to a greater degree of
government involvement in the economy and greater economic and political
uncertainty, which has the potential to extend to government imposed
restrictions on exchange traded transactions and currency transactions. These
restrictions may impact the Fund's ability to buy or sell certain securities or
to repatriate certain currencies to U.S. dollars. Additionally, changes in
currency exchange rates will affect the value of and investment income from such
securities.
5. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such
taxes are generally based on income earned or gains realized or repatriated.
Taxes are accrued and applied to net investment income, net realized capital
gains, and net unrealized appreciation, as applicable, as the income is earned
or capital gains are recorded.
At June 30, 1999, the Fund had available capital loss carryforwards to offset
future net capital gains, to the extent provided by U.S. Federal income tax
regulations, of approximately $53,293,000 and $69,761,000 which will expire on
June 30, 2006 and June 30, 2007, respectively.
To the extent that capital loss carryforwards are used to offset any future net
capital gains realized during the carryforward period as provided by U.S.
Federal income tax regulations, no capital gains tax liability will be incurred
by the Fund for gains realized and not distributed. To the extent that capital
gains are so offset, such gains will not be distributed to shareholders.
Net capital losses incurred after October 31 and within the taxable year are
deemed to arise on the first business day of the Fund's next taxable year. For
the period from November 1, 1998 to June 30, 1999, the Fund incurred and elected
to defer until July 1, 1999, for U.S. Federal income tax purposes, net capital
losses of approximately $999,000.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- --------------------- ------- ------- -------------
<S> <C> <C> <C>
$131,179 $45,500 $(2,547) $42,953
</TABLE>
6. DISTRIBUTION OF INCOME AND GAINS: The amount and the character of income and
capital gain distributions to be paid by the Fund are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing book and
tax treatment for foreign currency transactions, net operating losses, and
foreign taxes on net realized gains.
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, and paid in capital in excess of par. For
the year ended June 30, 1999 approximately $1,599,000 has been reclassified from
paid in capital in excess of par with approximately $1,300,000 posted to
accumulated net investment loss and approximately $299,000 posted to accumulated
net realized loss.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., provide the Fund with investment advisory services at a fee
paid monthly and calculated at the annual rates based on average daily net
assets as indicated below. The Adviser has agreed to reduce advisory fees
payable to it and to reimburse the Fund, if necessary, if the annual operating
expenses, as defined, expressed as a percentage of average daily net assets,
exceed the maximum ratios indicated as follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
------------ -------------- --------------
<S> <C> <C>
1.00% 1.90% 2.65%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$3,000 representing legal services
F-19
<PAGE>
VAN KAMPEN ASIAN GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
provided by Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel to the
Fund, of which a director of the Fund is an affiliated person.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides the
Fund with administrative services pursuant to an administrative agreement for a
monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the Fund, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Portfolio a distribution fee, which
is accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $180,695 for Class A shares and deferred sales charges of $4,722,
$184,325, and $27,849 for Class A shares, Class B shares, and Class C shares,
respectively.
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Trust Company ("MSTC"), a former affiliate of the
Subadvisers. Through September 30, 1998, the Fund incurred MSTC fees of
approximately $48,000. On October 1, 1998, the Chase Manhattan Bank purchased
MSTC.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
During the year ended June 30, 1999, the Fund incurred approximately $54,000 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/dealer.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $149,702,000 and sales of approximately $149,321,000
of investment securities other than long-term U.S. government securities and
short-term investments. There were no purchases or sales of long-term U.S.
government securities.
F-20
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Emerging Markets Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Emerging Markets Fund
(the "Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the
results of its operations, the changes in its net assets and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-21
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------------------
COMMON STOCKS (90.4%)
ARGENTINA (0.7%)
Telecom Argentina ADR................ 28,526 $ 763
Telefonica de Argentina ADR.......... 3,248 102
--------
865
--------
BRAZIL (4.4%)
CEMIG ADR............................ 19,217 408
Coteminas............................ 1,384,100 70
(b,c)Coteminas ADR................... 12,645 32
(a)CRT............................... 3,828,145 519
CVRD ADR............................. 31,619 628
Eletrobras ADR....................... 24,520 247
Eletrobras S.A....................... 2,328,560 44
Embratel Participacoes ADR........... 21,814 303
(a)Lojas Arupau ADR.................. 14,225 --
Pao de Acucar........................ 4,660,000 87
Pao de Acucar ADR.................... 3,367 63
Petrobras ADR........................ 4,950 76
Tele Celular Sul ADR................. 2,790 61
Tele Centro Oeste Sul................ 2,311,729 2
Tele Centro Sul...................... 3,818 212
Tele Nordeste Celular ADR............ 1,095 30
Tele Norte Leste..................... 12,849 239
Telemig Celular ADR.................. 1,365 34
Telesp Celular ADR................... 18,207 487
Telesp............................... 7,480 171
TeleSudeste Celular.................. 3,523 102
Unibanco GDR......................... 62,551 1,505
USIMINAS ADR (Registered Shares)..... 6,605 22
--------
5,342
--------
CHILE (0.6%)
CCU ADR.............................. 7,506 215
ENDESA ADR........................... 12,984 157
Enersis ADR.......................... 13,863 317
(a)Santa Isabel ADR.................. 5,015 51
--------
740
--------
CHINA (0.7%)
Huaneng Power International, Inc.
ADR................................ 14,095 241
Yanzhou Coal Mining Co. ADR.......... 18,228 324
Zhenhai Refining & Chemical Co.
`H'................................ 1,117,000 338
--------
903
--------
CZECH REPUBLIC (0.6%)
SPT Telecom a.s...................... 37,872 611
SPT Telecom a.s. GDR................. 10,260 166
--------
777
--------
EGYPT (0.6%)
(a)Al-Ahram Beverages Co. S.A.E.
GDR................................ 5,988 170
Eastern Tobacco...................... 7,721 188
Egypt Gas Co......................... 2,900 119
Egyptian Co. for Mobile Services..... 10,098 228
Industrial & Engineering............. 4,975 39
--------
744
--------
GREECE (2.0%)
Commercial Bank of Greece S.A........ 613 44
OTE S.A.............................. 60,701 1,303
OTE S.A. ADR......................... 98,506 1,089
--------
2,436
--------
HUNGARY (0.8%)
Matav Rt............................. 19,822 107
Matav Rt. ADR........................ 11,640 320
Matav Rt. ADR........................ 9,549 263
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
MOL Magyar Olaj-es Gazipari Rt. GDR.. 3,796 $ 91
OPT Bank Rt.......................... 5,985 250
--------
1,031
--------
INDIA (8.4%)
Bharat Heavy Electricals Ltd......... 155,500 881
Container Corp. of India Ltd......... 109,500 459
Gujarat Ambuja Cements Ltd........... 23,500 173
Hero Honda Motors Ltd................ 41,305 1,028
Hindustan Lever Ltd.................. 17,100 938
Housing Development Finance Corp.,
Ltd................................ 7,644 391
Infosys Technologies Ltd............. 22,300 1,863
ITC Limited.......................... 9,000 206
ITC Limited.......................... 20,100 507
Larson & Tourbo Ltd. `A'............. 68,700 453
Mahanagar Telephone Nigam Ltd........ 53,000 220
Mahanagar Telephone Nigam Ltd........ 40,000 171
MRF Ltd.............................. 5,000 220
NIIT Ltd............................. 12,000 562
Satyam Computer Services Ltd......... 28,000 818
(a)State Bank of India............... 102,100 558
Tata Engineering & Locomotive Co.,
Ltd................................ 49,500 235
Videsh Sanchar Nigam Ltd. GDR........ 8,900 114
(a)Zee Telefilms Ltd................. 18,000 603
--------
10,400
--------
INDONESIA (3.4%)
PT Gudang Garam Tbk (Foreign)........ 563,925 1,532
PT Indah Kiat Pulp & Paper Corp.
(Foreign).......................... 1,260,080 586
PT Semen Gresik Tbk.................. 224,700 489
PT Telekomunikasi Indonesia ADR...... 129,384 1,609
--------
4,216
--------
ISRAEL (2.9%)
(a)Amdocs Ltd........................ 22,700 516
(a)BackWeb Technologies Ltd.......... 2,280 62
Bank Hapoalim Ltd.................... 96,700 248
Bank Leumi Le-Israel Ltd............. 124,800 236
(a)Comverse Technology, Inc.......... 2,907 220
ECI Telecommunications Ltd........... 16,214 538
Elbit Systems Ltd.................... 1 --
(a)Gilat Satellite Networks Ltd...... 10,332 543
Koor Industries Ltd.................. 3,056 353
(a)NICE-Systems Ltd.................. 2,319 63
(a)NICE-Systems Ltd. ADR............. 6,220 171
(a)Orbotech Ltd...................... 5,256 274
Teva Pharmaceutical Industries Ltd.
ADR................................ 6,615 324
--------
3,548
--------
KOREA (16.6%)
Daewoo Securities, Co................ 19,040 370
Good Morning Securities Co., Ltd..... 74,860 462
Hana Bank............................ 34,640 509
Hankuk Glass Industry Co., Ltd....... 9,660 259
Housing & Commercial Bank............ 39,250 1,238
Kookmin Bank......................... 68,800 1,397
Kookmin Bank GDR..................... 1,708 35
Koram Bank........................... 34,740 435
Korea Electric Power Corp............ 32,690 1,358
Korea Electric Power Corp. ADR....... 94,180 1,931
Korea Exchange Bank.................. 85,920 482
(b)Korea Telecom Corp................ 39,080 2,593
(a)Korea Telecom Corp. ADR........... 58,600 2,344
LG Securities Co..................... 4,820 81
LG Chemical Ltd...................... 13,140 358
(b)Pohang Iron & Steel Ltd.
(Foreign).......................... 15,866 1,953
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-22
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Samsung Electro-Mechanics Co......... 10,829 $ 374
Samsung Electronics Co. (Foreign).... 27,321 2,998
Shinhan Bank Co. Ltd................. 37,000 415
(b)SK Telecom Co., Ltd............... 539 740
SK Telecom Co., Ltd. ADR............. 12,890 219
--------
20,551
--------
MALAYSIA (3.0%)
Commerce Asset-Holdings Bhd.......... 205,000 507
Malayan Banking Bhd.................. 267,000 801
Nestle Bhd........................... 60,000 237
Public Bank Bhd...................... 236,000 180
Rothmans of Pall Mall Bhd............ 73,000 552
Telekom Malaysia Bhd................. 292,000 1,091
Tenaga Nasional Bhd.................. 150,000 345
--------
3,713
--------
MEXICO (12.9%)
Alfa................................. 71,278 296
Banacci `L'.......................... 177,316 433
Banacci `O'.......................... 129,543 327
(a)Carso `A1'........................ 68,984 320
Cemex `B'............................ 8,992 45
Cemex `B' ADR........................ 85,345 843
Cemex CPO............................ 205,048 1,014
Cemex CPO ADR........................ 52,824 502
(a)Cifra `C'......................... 155,524 285
(a)Cifra `V'......................... 42,653 83
(a)Cifra `V' ADR..................... 21,660 415
FEMSA................................ 361,047 1,445
FEMSA ADR............................ 30,581 1,219
(a)Grupo Financiero Bancomer S.A. de
C.V. `O'........................... 447,556 162
(c)Grupo Financiero Bancomer S.A. de
C.V. `O' ADR....................... 31,915 231
Kimberly `A'......................... 120,293 495
Telmex ADR........................... 54,613 4,413
(a)Televisa CPO GDR.................. 76,887 3,436
--------
15,964
--------
PAKISTAN (0.4%)
Fauji Fertilizer Co., Ltd............ 256,900 200
Pakistan State Oil Co., Ltd.......... 125,572 221
Pakistan Telecommunication Corp.
`A'................................ 144,300 55
--------
476
--------
PHILIPPINES (1.0%)
Manila Electric Co. `B'.............. 90,610 327
San Miguel Corp. `B'................. 267,557 585
SM Prime Holdings, Inc............... 1,560,940 353
--------
1,265
--------
POLAND (2.5%)
(a)Bank Polska Kasa Opieki Pekao
S.A................................ 5,979 69
Elektrim S.A......................... 32,995 466
Powszechny Bank Kredytowy S.A........ 4,503 108
(a)Powszechny Bank Kredytowy S.A.
`C'................................ 1,125 20
Prokom Software GDR.................. 14,833 243
(a)Telekomunikacja Polska GDR........ 287,808 2,029
Wielkopolski Bank Kredytowy.......... 15,798 93
--------
3,028
--------
RUSSIA (3.5%)
A.O. Tatneft ADR..................... 4,300 16
Lukoil Oil Co. ADR................... 36,053 1,474
(a,b)Mustcom......................... 4,570,885 954
(a,b,d)Storyfirst Communications,
Inc................................ 600 453
Surgutneftegaz ADR................... 147,009 1,240
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
RAO Unified Energy Systems GDR....... 15,080 $ 146
--------
4,283
--------
SINGAPORE (0.9%)
(a)Asia Pulp & Paper Co., Ltd. ADR... 113,725 1,095
--------
SOUTH AFRICA (6.9%)
Amalgamated Banks of South Africa.... 101,910 577
(a)Anglo American plc................ 3,500 166
(a)Anglo American plc................ 18,340 857
(a)Anglo American plc ADR............ 220 11
B.O.E. Corp., Ltd. `N'............... 833,254 663
B.O.E. Corp., Ltd.................... 104,460 104
Bidvest Group Ltd.................... 128,640 1,074
Billiton Plc......................... 84,200 291
Comparex Holdings Ltd................ 25,640 161
De Beers Centenary AG................ 10,840 260
De Beers Consolidated Mines ADR...... 5,220 125
Ellerine Holdings Ltd................ 60,710 241
Firstrand Ltd........................ 616,420 705
Liberty Life Association of Africa
Ltd................................ 20,518 263
Nedcor Ltd........................... 23,750 545
(a)New Africa Investments Ltd. `N'... 394,410 232
Rembrant Group Ltd................... 85,390 712
(a)Sanlam Ltd........................ 354,900 421
Sasol Ltd............................ 19,800 141
(a)South African Breweries Ltd....... 87,490 749
(a)South African Breweries Ltd....... 13,140 114
The Education Investment Corp.,
Ltd................................ 147,892 139
--------
8,551
--------
TAIWAN (10.8%)
(a)Acer, Inc......................... 138,000 350
(a)Advanced Semiconductor
Engineering, Inc................... 182,000 614
Asustek Computer, Inc................ 195,980 2,209
Bank Sinopac......................... 415,000 289
Cathay Life Insurance Co., Ltd....... 111,000 399
Chang Hwa Commercial Bank............ 122,000 183
(a)China Development Corp............ 47,000 117
China Steel Corp..................... 682,500 516
(a)Chinatrust Commercial Bank........ 317,000 381
Compal Electronics, Inc.............. 149,760 589
(a)E. Sun Commercial Bank............ 173,000 96
(a)Far Eastern Textile Ltd........... 562,000 835
First Commercial Bank................ 110,000 209
Formosa Plastics Corp................ 213,000 448
(a)Hon Hai Precision Industry........ 115,000 1,040
Hua Nan Commercial Bank.............. 134,000 266
International Commercial Bank of
China.............................. 259,000 335
Nan Ya Plastic Corp.................. 276,000 457
(a)President Chain Store Corp........ 64,153 217
Quanta Computer Inc.................. 24,120 289
(a)Shinkong Synthetic Fibers Corp.... 1 --
(a)Siliconware Precision Industries
Co................................. 220,349 420
(a)Taishin International Bank........ 464,000 345
(a)Taiwan Semiconductor Co........... 645,750 2,469
(a)Taiwan Semiconductor Co. ADR...... 3,996 136
United World Chinese Commercial
Bank............................... 77,000 119
--------
13,328
--------
THAILAND (2.8%)
Advanced Info Service Public Co.,
Ltd. (Foreign)..................... 93,200 1,263
BEC World Public Co., Ltd............ 65,100 406
Delta Electronics Public Co., Ltd.
(Foreign).......................... 54,337 457
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
THAILAND (CONT.)
Shin Corp. Public Co., Ltd.
(Foreign).......................... 123,280 $ 575
Siam City Cement Public Co., Ltd.
(Foreign).......................... 146,833 605
Thai Farmer's Bank Public Co. Ltd.
(Foreign).......................... 29,000 90
--------
3,396
--------
TURKEY (4.0%)
Akbank T.A.S......................... 35,010,500 515
(c)Akbank T.A.S. ADR................. 8,080 24
Dogan Sirketler Grupo Holdings
A.S................................ 44,840,000 595
Ege Biracilik Ve Malt Sanayii........ 3,565,500 266
(a)Erciyas Biracilik Ve Malt
Sanayii............................ 1,555,488 36
Kos Holdings A.S..................... 2,912,000 183
Migros Turk T.A.S.................... 174,000 217
Sabanci Holding...................... 10,227,000 228
Turkiye Petrol Rafinerileri A.S...... 1,910,000 127
(a)Turkiye Garanti Bankasi........... 39,243,400 293
Turkiye Is Bankasi, `C'.............. 14,848,000 264
(a)Vestel Elektronik Sanayii ve
Ticaret A.S........................ 4,563,470 498
Yapi Ve Kredi Bankasi A.S............ 112,988,405 1,633
--------
4,879
--------
TOTAL COMMON STOCKS..................................... 111,531
--------
PREFERRED STOCKS (6.7%)
BRAZIL (6.4%)
(a,b)Banco Nacional.................. 11,156,000 --
Brahma............................... 596,081 336
CRT.................................. 3,828,145 939
CEMIG................................ 35,414,681 745
CVRD `A'............................. 31,083 615
Eletrobras `B'....................... 3,592,000 72
Embratel Participacoes `A'........... 8,970,552 124
(a)Lojas Arapua...................... 12,437,000 --
Petrobras............................ 7,248,400 1,122
Telebras ADR......................... 4,839 436
Telebras............................. 14,958,000 1,338
Tele Celular Sul ADR................. 51,006,152 107
Tele Centro Sul...................... 33,238,552 368
Tele Nordeste Celular................ 11,378,752 15
Tele Norte Leste..................... 5,725,552 104
Tele Sudeste Celular................. 46,446,552 262
Telemig Celular...................... 56,455,552 71
Telerj Celular....................... 2,082,000 68
Telesp............................... 6,990,552 160
Telesp Celular....................... 33,604,552 348
Telesp Celular....................... 9,786,261 509
(a)USIMINAS.......................... 37,900 128
--------
7,867
--------
COLOMBIA (0.0%)
BanColombia.......................... 7,150 10
--------
THAILAND (0.3%)
(a)Siam Commercial Bank.............. 238,800 340
--------
TOTAL PREFERRED STOCKS.................................. 8,217
--------
INVESTMENT COMPANIES (0.0%)
UNITED STATES (0.0%)
(e)Morgan Stanley Dean Witter Africa
Investment Fund, Inc............... 4,470 45
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF VALUE
RIGHTS (000)
<S> <C> <C>
- --------------------------------------------------------------------
RIGHTS (0.1%)
BRAZIL (0.0%)
(a,b)CRT............................. 3,828,145 $ --
--------
KOREA (0.1%)
(a,b)SK Telecom Co., Ltd............. 499 63
--------
SOUTH AFRICA (0.0%)
(a)Liberty Internationl plc.......... 9,565 63
--------
TOTAL RIGHTS............................................ 126
--------
NO. OF
WARRANTS
-----------
WARRANTS (0.3%)
THAILAND
(a)Siam Commercial Bank (expiring
12/31/02).......................... 111,466 --
(a)Siam Commercial Bank (expiring
5/10/02)........................... 658,000 424
--------
424
--------
<CAPTION>
PAR
VALUE
(000)
-----------
CONVERTIBLE DEBENTURE (0.5%)
<S> <C> <C>
RUSSIA (0.5%)
(a,b)Svyaz Finance Ltd. 17.00%,
8/11/99............................ $ 2,684,488 660
--------
TOTAL LONG-TERM INVESTMENTS (98.0%) (COST $110,577)..... 121,003
--------
SHORT-TERM INVESTMENT (2.0%)
REPURCHASE AGREEMENT (2.0%)
Chase Securities, Inc., 4.55%, dated
6/30/99, 2,404
due 7/1/99, to be repurchased at $2,404
collateralized by $2,235 Treasury Bonds,
7.250%, due 5/15/16, valued at $2,484
(COST $2,404)....................................... 2,404
--------
TOTAL INVESTMENTS IN SECURITIES (100.0%)
(COST $112,981)......................................... 123,407
--------
FOREIGN CURRENCY (0.6%) (COST $776)..................... 774
--------
TOTAL INVESTMENTS (100.6%) (COST $113,757).............. 124,181
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.6%)........... (713)
--------
NET ASSETS (100%)....................................... $123,468
========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
(b) -- Security valued at fair value -- see note A-1 to
financial statements
(c) -- 144A Security -- Certain conditions for public sale may
exist.
(d) -- Restricted as to public resale. Total value of restricted
securities at June 30, 1999 was $453,000 or 0.37% of net
assets (Total cost $1,500,000).
(e) -- The Fund is advised by an affiliate which earns a
management fee as advisor to the Fund.
ADR -- American Depositary Receipt
CPO -- Certificate of Participation
GDR -- Global Depositary Receipt
</TABLE>
- ----------------------------------------------------------------
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------- -------- ----------
<S> <C> <C>
Services............................... $ 39,145 31.7%
Finance................................ 22,009 17.8
Consumer Goods......................... 16,671 13.5
Capital Equipment...................... 16,595 13.4
Materials.............................. 12,824 10.4
Energy................................. 11,488 9.3
Multi-Industry......................... 2,271 1.9
-------- ----
$121,003 98.0%
======== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
ASSETS:
Investments in Securities, at Value (Cost $112,981)....... $123,407
Foreign Currency (Cost $776).............................. 774
Receivable for:
Investments Sold........................................ 1,779
Dividends............................................... 508
Fund Shares Sold........................................ 446
Interest................................................ 406
Foreign Withholding Tax Reclaim........................... 2
Other..................................................... 18
--------
Total Assets............................................ 127,340
--------
LIABILITIES:
Payable for:
Investments Purchased................................... 2,866
Custody Fees............................................ 246
Deferred Country Tax.................................... 231
Distribution Fees....................................... 134
Fund Shares Redeemed.................................... 131
Investment Advisory Fees................................ 81
Bank Overdraft.......................................... 58
Professional Fees....................................... 35
Administrative Fees..................................... 25
Transfer Agent Fees..................................... 25
Shareholder Reporting Expenses.......................... 24
Directors' Fees and Expenses............................ 14
Other..................................................... 2
--------
Total Liabilities....................................... 3,872
--------
NET ASSETS.................................................. $123,468
========
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 13
Paid in Capital in Excess of Par.......................... 172,856
Net Unrealized Appreciation on Investments and Foreign
Currency Translations*.................................. 10,264
Accumulated Net Investment Loss........................... (554)
Accumulated Net Realized Loss............................. (59,111)
--------
NET ASSETS.................................................. $123,468
========
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $63,273,132 and 6,413,606 Shares
Outstanding)............................................ $ 9.87
========
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100/ (100 - maximum sales charge)).............. $ 10.47
========
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $38,312,954 and 4,010,764 Shares
Outstanding)**.......................................... $ 9.55
========
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $21,882,158 and 2,286,771 Shares
Outstanding)**.......................................... $ 9.57
========
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Net of accrual for deferred country tax of approximately
U.S. $144,000.
** Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 2,508
Interest.................................................. 607
Less Foreign Taxes Withheld............................... (136)
--------
Total Income............................................. 2,979
--------
EXPENSES:
Investment Advisory Fees.................................. 1,337
Distribution Fees (Attributed to Classes A, B, and C of
$141, $299, and $205, respectively)..................... 645
Custodian Fees............................................ 476
Administrative Fees....................................... 285
Country Tax Expense....................................... 88
Transfer Agent Fees....................................... 71
Shareholder Reports....................................... 64
Professional Fees......................................... 52
Interest Expense.......................................... 45
Filing and Registration Fees.............................. 38
Directors' Fees and Expenses.............................. 11
Other..................................................... 12
--------
Total Expenses.......................................... 3,124
Less Expense Reductions................................. (239)
--------
Net Expenses............................................ 2,885
--------
Net Investment Income/Loss.................................. 94
--------
NET REALIZED GAIN/LOSS ON:
Investments............................................... (31,019)
Foreign Currency Transactions............................. (120)
Swaps..................................................... (226)
--------
Net Realized Gain/Loss................................... (31,365)
--------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... (37,352)
--------
End of the Period:
Investments............................................. 10,426
Foreign Currency Translations........................... (162)
--------
10,264
--------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 47,616
--------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. 16,251
--------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ 16,345
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ 94 $ (617)
Net Realized Gain/Loss.................................... (31,365) (23,236)
Net Unrealized Appreciation/Depreciation.................. 47,616 (57,677)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 16,345 (81,530)
------------- -------------
DISTRIBUTIONS:
Net Realized Gain:
Class A................................................... -- (6,225)
Class B................................................... -- (3,112)
Class C................................................... -- (2,878)
In Excess of Net Realized Gain:
Class A................................................... (1) (2,361)
Class B................................................... (1) (1,180)
Class C................................................... (1) (1,091)
------------- -------------
(3) (16,847)
------------- -------------
Return of Capital:
Class A................................................... (29) --
Class B................................................... (14) --
Class C................................................... (9) --
------------- -------------
(52) --
------------- -------------
Net Decrease in Net Assets Resulting from Distributions..... (55) (16,847)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 59,525 160,772
Distributions Reinvested.................................. 54 15,915
Redeemed.................................................. (92,463) (151,194)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... (32,884) 25,493
------------- -------------
Total Increase/Decrease in Net Assets..................... (16,594) (72,884)
NET ASSETS--Beginning of Period............................. 140,062 212,946
------------- -------------
NET ASSETS--End of Period (Including accumulated net
investment loss of $(554) and $(1,090), respectively)..... $ 123,468 $ 140,062
============= =============
- ------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) Class A:
----------
Shares:
Subscribed............................................. 6,660 10,304
Distributions Reinvested............................... 4 891
Redeemed............................................... (9,639) (10,645)
------------- -------------
Net Increase/Decrease in Class A Shares Outstanding...... (2,975) 550
============= =============
Dollars:
Subscribed............................................. $ 48,869 $ 114,410
Distributions Reinvested............................... 30 8,101
Redeemed............................................... (68,213) (115,555)
------------- -------------
Net Increase/Decrease.................................... $ (19,314) $ 6,956
============= =============
Ending Paid in Capital................................... $ 88,430+ $ 107,744
============= =============
Class B:
----------
Shares:
Subscribed............................................. 935 2,827
Distributions Reinvested............................... 2 457
Redeemed............................................... (1,605) (1,321)
------------- -------------
Net Increase/Decrease in Class B Shares Outstanding...... (668) 1,963
============= =============
Dollars:
Subscribed............................................. $ 7,223 $ 33,891
Distributions Reinvested............................... 14 4,064
Redeemed............................................... (11,281) (13,053)
------------- -------------
Net Increase/Decrease.................................... $ (4,044) $ 24,902
============= =============
Ending Paid in Capital................................... $ 52,409+ $ 56,453
============= =============
Class C:
----------
Shares:
Subscribed............................................. 462 1,061
Distributions Reinvested............................... 1 421
Redeemed............................................... (1,857) (2,173)
------------- -------------
Net Increase/Decrease in Class C Shares Outstanding...... (1,394) (691)
============= =============
Dollars:
Subscribed............................................. $ 3,433 $ 12,471
Distributions Reinvested............................... 10 3,750
Redeemed............................................... (12,969) (22,586)
------------- -------------
Net Increase/Decrease.................................... $ (9,526) $ (6,365)
============= =============
Ending Paid in Capital................................... $ 32,835+ $ 42,361
============= =============
</TABLE>
- ---------------
<TABLE>
<S> <C>
+ Ending Paid in Capital amounts do not reflect permanent book
to tax differences.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
YEAR ENDED JUNE 30,
------------------------------------------ JULY 6, 1994* TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 JUNE 30, 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $ 7.984 $ 13.47 $ 12.06 $ 10.61 $ 12.00
------- ------- -------- -------- --------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss..... 0.032 -- 0.01 0.05 0.05
Net Realized and Unrealized
Gain/Loss.................... 1.853 (4.49) 1.57 1.44 (1.44)
------- ------- -------- -------- --------------
Total From Investment
Operations................... 1.885 (4.49) 1.58 1.49 (1.39)
------- ------- -------- -------- --------------
DISTRIBUTIONS
Net Investment Income.......... -- -- -- (0.04) --
In Excess of Net Investment
Income....................... -- -- (0.04) -- --
Net Realized Gain.............. -- (0.73) (0.13) -- --
In Excess of Net Realized
Gain......................... (0.004) (0.27) -- -- --
Return of Capital.............. (0.000)++ -- -- -- --
------- ------- -------- -------- --------------
Total Distributions............ (0.004) (1.00) (0.17) (0.04) --
------- ------- -------- -------- --------------
NET ASSET VALUE, END OF PERIOD... $ 9.865 $ 7.98 $ 13.47 $ 12.06 $ 10.61
======= ======= ======== ======== ==============
TOTAL RETURN (1)................. 23.92% (34.31)% 13.54% 14.16% (11.58)%**
======= ======= ======== ======== ==============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's)........................ $63,273 $74,959 $119,022 $114,850 $ 26,091
Ratio of Expenses to Average Net
Assets......................... 2.34% 2.27% 2.21% 2.16% 2.33%
Ratio of Net Investment Income/
Loss to Average Net Assets..... 0.44% 0.04% (0.06)% 0.93% 0.81%
Portfolio Turnover Rate.......... 132% 99% 82% 42% 32%**
- ---------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss....... $ 0.02 $ 0.03 $ 0.03 $ 0.02 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net
Assets....................... 2.56% 2.60% 2.41% 2.56% 3.10%
Net Investment Income/Loss to
Average Net Assets........... 0.22% (0.24)% (0.27)% 0.53% 0.04%
Ratio of Expenses to Average Net
Assets excluding country tax
expense and interest expense... 2.15% 2.15% 2.15% 2.15% 2.15%
- ---------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
--------------------------------------------------
YEAR ENDED JUNE 30,
----------------------------- AUGUST 1, 1995+
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 TO JUNE 30, 1996
<S> <C> <C> <C> <C>
- ----------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $ 7.784 $ 13.24 $ 11.94 $ 10.91
------- ------- ------- ---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss..... (0.021) (0.07) (0.03) 0.01
Net Realized and Unrealized
Gain/Loss.................... 1.794 (4.39) 1.50 1.02
------- ------- ------- ---------------
Total From Investment
Operations................... 1.773 (4.46) 1.47 1.03
------- ------- ------- ---------------
DISTRIBUTIONS
Net Investment Income.......... -- -- -- --
In Excess of Net Investment
Income....................... -- -- (0.04) --
Net Realized Gain.............. -- (0.73) (0.13) --
In Excess of Net Realized
Gain......................... (0.004) (0.27) -- --
Return of Capital.............. (0.000)++ -- -- --
------- ------- ------- ---------------
Total Distributions............ (0.004) (1.00) (0.17) --
------- ------- ------- ---------------
NET ASSET VALUE, END OF PERIOD... $ 9.553 $ 7.78 $ 13.24 $ 11.94
======= ======= ======= ===============
TOTAL RETURN (1)................. 22.99% (34.76)% 12.67% 9.45%**
======= ======= ======= ===============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's)........................ $38,313 $36,423 $35,966 $ 10,416
Ratio of Expenses to Average Net
Assets......................... 3.09% 3.02% 2.96% 2.91%
Ratio of Net Investment Income/
Loss to Average Net Assets..... (0.29)% (0.67)% (0.64)% 0.30%
Portfolio Turnover Rate.......... 132% 99% 82% 42%**
- ---------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss....... $ 0.02 $ 0.03 $ 0.01 $ 0.02
Ratios Before Expense Limitation:
Expenses to Average Net
Assets....................... 3.31% 3.35% 3.17% 3.31%
Net Investment Income/Loss to
Average Net Assets........... (0.51)% (0.97)% (0.87)% (0.10)%
Ratio of Expenses to Average Net
Assets excluding country tax
expense and interest expense... 2.90% 2.90% 2.90% 2.90%
- --------------------------------------------------------------------------------------------------- ------------------------------
- --------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------- JULY 6, 1994* TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 JUNE 30, 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 7.791 $ 13.26 $ 11.93 $ 10.53 $ 12.00
------- ------- ------- ------- ---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss.......................... (0.023) (0.08) (0.08) (0.01) --
Net Realized and Unrealized Gain/Loss............... 1.805 (4.39) 1.55 1.41 (1.47)
------- ------- ------- ------- ---------------
Total From Investment Operations.................... 1.782 (4.47) 1.47 1.40 (1.47)
------- ------- ------- ------- ---------------
DISTRIBUTIONS
Net Investment Income............................... -- -- -- -- --
In Excess of Net Investment Income.................. -- -- (0.01) -- --
Realized Gain....................................... -- (0.73) (0.13) -- --
In Excess of Net Realized Gain...................... (0.004) (0.27) -- -- --
Return of Capital................................... (0.000)++ -- -- -- --
------- ------- ------- ------- ---------------
Total Distributions................................. (0.004) (1.00) (0.14) -- --
------- ------- ------- ------- ---------------
NET ASSET VALUE, END OF PERIOD........................ $ 9.569 $ 7.79 $ 13.26 $ 11.93 $ 10.53
======= ======= ======= ======= ===============
TOTAL RETURN (1)...................................... 23.09% (34.73)% 12.66% 13.30% (12.25)%**
======= ======= ======= ======= ===============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)..................... $21,882 $28,680 $57,958 $43,601 $ 22,245
Ratio of Expenses to Average Net Assets............... 3.09% 3.01% 2.96% 2.91% 3.08%
Ratio of Net Investment Income/Loss to Average Net
Assets.............................................. (0.32)% (0.76)% (0.79)% (0.11)% 0.06%
Portfolio Turnover Rate............................... 132% 99% 82% 42% 32%**
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the
Period
Per Share Benefit to Net Investment Income/Loss..... $ 0.02 $ 0.03 $ 0.02 $ 0.03 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets...................... 3.31% 3.34% 3.17% 3.34% 3.90%
Net Investment Income/Loss to Average Net Assets.... (0.54)% (1.03)% (1.00)% (0.54)% (0.76)%
Ratio of Expenses to Average Net Assets excluding
country tax expense and interest expense............ 2.90% 2.90% 2.90% 2.90% 2.90%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
** Non-Annualized
+ The Fund began offering Class B shares on August 1, 1995.
++ Amount is less than $0.001 per share.
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-28
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Emerging Markets Fund, (the "Fund") is organized as a separate
non-diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation,
which is registered as an open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective
seeks long-term capital appreciation by investing primarily in equity securities
of emerging country issues. The Fund commenced operations on July 6, 1994.
The Fund currently offers three classes of shares, Class A, Class B, and
Class C shares. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge of 1.00% imposed in the event
of certain redemptions within one year of the purchase. Class B and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED SALES
CHARGE
-------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First........................................ 5.00% 1.00%
Second....................................... 4.00% None
Third........................................ 3.00% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Thereafter................................... None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights. The Fund began offering the current Class B shares on August 1,
1995. Class B shares held prior to May 1, 1995 were renamed Class C shares.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the current bid and asked prices obtained from reputable
brokers. Debt securities purchased with remaining maturities of 60 days or less
are valued at amortized cost, if it approximates market value. All other
securities and assets for which market values are not readily available are
valued at fair value as determined in good faith by the Board of Directors,
although the actual calculations may be done by others.
2. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date, net
of applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on an accrual basis except where
collection is in doubt. Income, expenses (other than class specific expenses),
and realized and unrealized gains or losses are allocated to each class of
shares based upon their relative net assets. Distributions from the Fund are
recorded on the ex-distribution date.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices. Purchases and sales of portfolio securities are translated at the
rate of exchange prevailing when such securities were purchased or sold. Income
and expenses are translated at rates prevailing when accrued. Realized and
unrealized gains and losses on securities are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and losses on foreign currency includes the net
realized amount from the sale of the currency and the amount realized between
trade date and settlement date on security and income transactions. However, the
foreign currency portion of gains and losses realized on sales and maturities of
foreign denominated debt securities is treated as ordinary income for U.S.
Federal income tax purposes.
F-29
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
The net assets of the Fund include issuers located in emerging markets. There
are certain risks inherent in these investments not typically associated with
investments in the United States, including the smaller size of the markets
themselves, lesser liquidity, greater volatility and potentially less publicly
available information. Emerging markets may be subject to a greater degree of
government involvement in the economy and greater economic and political
uncertainty, which has the potential to extend to government imposed
restrictions on exchange traded transactions and currency transactions. These
restrictions may impact the Fund's ability to buy or sell certain securities or
to repatriate certain currencies to U.S. dollars. Additionally, changes in
currency exchange rates will affect the value of and investment income from such
securities.
5. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such
taxes are generally based on income earned or gains realized or repatriated.
Taxes are accrued and applied to net investment income, net realized capital
gains and net unrealized appreciation, as applicable, as the income is earned or
capital gains are recorded.
At June 30, 1999, the Fund had a capital loss carryforward for U.S. Federal
income tax purposes of approximately $45,443,000 which will expire June 30,
2007.
To the extent that capital loss carryforwards are used to offset any future net
capital gains realized during the carryforward period as provided by U.S.
Federal income tax regulations, no capital gains tax liability will be incurred
by the Fund for gains realized and not distributed. To the extent that capital
gains are so offset, such gains will not be distributed to shareholders.
Net capital and net currency losses incurred after October 31 and within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. For the period from November 1, 1998 to June 30, 1999 the Fund
incurred and elected to defer until July 1, 1999, for U.S. Federal income tax
purposes, net currency and capital losses of approximately $10,331,000.
At June 30, 1999, cost and unrealized appreciation/ depreciation for the U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. (DEPREC.) DEPRECIATION
(000) (000) (000) (000)
- -------- -------- ---------- -------------
<S> <C> <C> <C>
$116,854 $26,914 $(20,361) $6,553
</TABLE>
6. DISTRIBUTION OF INCOME AND GAINS: The amount and the character of income and
capital gain distributions to be paid by the Fund are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing book and
tax treatment for foreign currency transactions, net operating losses, foreign
taxes on net realized gains, deductibility of interest expense on short sales
and gains on certain securities of corporations designated as "passive foreign
investment companies."
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, paid in capital in excess of par. For the
year ended June 30, 1999, approximately $805,000 has been reclassified from paid
in capital in excess of par with approximately $442,000 posted to accumulated
net investment loss and approximately $363,000 posted to accumulated net
realized loss.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., provide the Fund with investment advisory services at a fee
paid monthly and calculated at the annual rates based on average daily net
assets as indicated below. The Adviser has agreed to reduce advisory fees
payable to it and to reimburse the Fund, if necessary, if the annual operating
expenses, as defined, expressed as a percentage of average daily net assets,
exceed the maximum ratios indicated as follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- ------------ -------------- --------------
<S> <C> <C>
1.25% 2.15% 2.90%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$5,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides the
Fund with administrative services pursuant to an administrative agreement for a
monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the portfolio, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the
F-30
<PAGE>
VAN KAMPEN EMERGING MARKETS FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
Adviser from the fee it receives from the Fund. Transfer Agency services are
provided to the Fund by Van Kampen Investor Services Inc., an affiliate of the
Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B and Class C shares of the Fund, on an
annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $154,972 for Class A shares and deferred sales charges of $9,133,
$174,193, and $5,977 for Class A shares, Class B shares, and Class C shares,
respectively.
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Trust Company ("MSTC"), a former affiliate of the
Subadvisers. Through September 30, 1998, the Fund incurred MSTC fees of
approximately $104,000. On October 1, 1998, the Chase Manhattan Bank purchased
MSTC.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
During the year ended June 30, 1999, the Fund incurred approximately $49,000 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/ dealer.
At June 30, 1999, the Fund owned shares of affiliated funds for which the Fund
earned dividend income of approximately $30,000 during the period.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $137,936,000 and sales of approximately $171,006,000
of investment securities other than long-term U.S. government securities and
short-term investments. There were no purchases or sales of long-term U.S.
government securities.
D. DERIVATIVE FINANCIAL INSTRUMENTS: A derivative financial instrument in very
general terms refers to security whose value is "derived" from the value of an
underlying asset, reference rate or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, foreign currency
exposure, maturity and duration. All of the Fund's portfolio holdings, including
derivative instruments, are marked-to-market each day with the change in value
reflected in unrealized appreciation/depreciation. Upon disposition, a realized
gain or loss is recognized accordingly, except when exercising a call option
contract or taking delivery of a security underlying a forward contract. In this
instance, the recognition of gain or loss is postponed until the disposal of the
security underlying the option or forward contract. Risks may arise as a result
of the potential inability of the counterparties to meet the terms of their
contracts.
Summarized below are the specific types of derivative financial instruments used
by the Fund.
1. SWAP AGREEMENTS: The Fund may enter into total return swap agreements to
exchange the return generated by one security, instrument or basket of
instruments for the return generated by another security, instrument or basket
of instruments. Total return swaps involve commitments to pay interest in
exchange for a market-linked return based on a notional amount. To the extent
the total return of the security or index underlying the transactions exceeds or
falls short of the offsetting interest obligation, the Fund will receive a
payment from or make a payment to the counterparty, respectively. Total return
swaps are marked-to-market daily based upon quotations from market makers and
the change, if any, is recorded as unrealized gains or losses in the Statement
of Operations. Periodic payments received or made at the end of each measurement
period, but prior to termination, are recorded as realized gains or losses in
the Statement of Operations.
Realized gains or losses on maturity or termination of total return swaps are
presented in the Statement of Operations. Because there is no organized market
for these swap agreements, the value reported in the Statement of Net Assets may
differ from that which would be realized in the event the Fund terminated its
position in the agreement. Risks may arise upon entering into these agreements
from the potential inability of the counterparties to meet the terms of the
agreements and are generally limited to the amount of net interest payments to
be received and/or favorable movements in the value of the underlying security,
if any, at the date of default.
F-31
<PAGE>
VAN KAMPEN EQUITY GROWTH FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Equity Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Equity Growth Fund (the
"Fund", a fund of Van Kampen Series Fund Inc.), at June 30, 1999, the results of
its operations, the changes in its net assets and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1999 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-32
<PAGE>
VAN KAMPEN EQUITY GROWTH FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------------------
COMMON STOCKS (98.2%)
CAPITAL GOODS (20.9%)
General Electric Co..................... 18,600 $ 2,102
(a)Gulfstream Aerospace Corp............ 14,600 986
Pitney Bowes, Inc....................... 16,400 1,054
Textron, Inc............................ 7,600 626
Tyco International Ltd.................. 36,300 3,439
United Technologies Corp................ 26,300 1,885
(a)WESCO International, Inc............. 4,500 92
-------
10,184
-------
COMMUNICATION SERVICES (6.6%)
American Telephone & Telegraph Co....... 14,402 804
Bell Atlantic Corp...................... 11,100 725
(a)Crown Castle International Corp...... 11,600 241
(a)MCI WorldCom, Inc.................... 16,600 1,432
-------
3,202
-------
CONSUMER CYCLICALS (13.9%)
(a)Abercrombie & Fitch Co. 'A'.......... 12,800 614
(a)Berkshire Hathaway, Inc. 'B'......... 274 616
(a)Best Buy Co., Inc.................... 1,400 95
(a)Costco Cos., Inc..................... 12,300 985
Gap, Inc................................ 15,050 758
Harley-Davidson, Inc.................... 200 11
Home Depot, Inc......................... 19,900 1,282
Intimate Brands, Inc.................... 6,405 303
(a)Nielsen Media Research, Inc.......... 6,599 193
(a)Office Depot, Inc.................... 16,300 360
Omnicom Group, Inc...................... 6,800 544
Wal-Mart Stores, Inc.................... 20,300 980
-------
6,741
-------
CONSUMER STAPLES (14.5%)
Anheuser-Busch Cos., Inc. 'A'........... 4,000 284
(a)AT&T Corp., Liberty Media Group
'A'................................... 23,200 853
(a)Brinker International, Inc........... 4,900 133
(a)Chancellor Media Corp. 'A'........... 8,800 485
(a)Clear Channel Communications, Inc.... 22,500 1,551
Coca-Cola Enterprises, Inc.............. 8,000 238
Comcast Corp. 'A'....................... 2,600 93
Comcast Corp. 'A' (Special)............. 21,400 823
(a)Keebler Foods Co..................... 7,300 222
(a)MediaOne Group, Inc.................. 300 22
Philip Morris Cos., Inc................. 13,400 538
Procter & Gamble Co..................... 6,500 580
Time Warner, Inc........................ 16,900 1,242
-------
7,064
-------
ENERGY (0.4%)
Exxon Corp.............................. 2,400 185
-------
FINANCIAL (4.6%)
American Express Co..................... 6,800 885
Bank of New York Co., Inc............... 15,300 561
Citigroup, Inc.......................... 16,750 796
(a)E-LOAN, Inc.......................... 100 4
-------
2,246
-------
HEALTH CARE (13.2%)
American Home Products Corp............. 3,800 219
(a)Amgen, Inc........................... 10,200 621
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Bristol-Myers Squibb Co................. 16,900 $ 1,190
Eli Lilly & Co.......................... 3,300 236
Johnson & Johnson....................... 4,800 471
Merck & Co., Inc........................ 15,800 1,169
Pfizer, Inc............................. 7,800 856
Pharmacia & Upjohn, Inc................. 3,700 210
Schering-Plough Corp.................... 7,800 413
Warner-Lambert Co....................... 14,600 1,013
-------
6,398
-------
TECHNOLOGY (23.8%)
(a)America Online, Inc.................. 5,400 597
(a)American Tower Corp. 'A'............. 13,300 319
(a)Applied Materials, Inc............... 6,600 488
Ask Jeeves, Inc......................... 300 4
(a)At Home Corp. 'A'.................... 2,300 124
(a)BMC Software, Inc.................... 3,600 194
(a)CIENA Corp........................... 1,500 45
(a)Cisco Systems, Inc................... 29,500 1,903
Clarent Corp............................ 100 2
(a)Compuware Corp....................... 6,700 213
(a)General Motors Corp. 'H'............. 3,600 203
Intel Corp.............................. 21,800 1,297
(a)Juniper Networks, Inc................ 1,300 194
(a)L-3 Communications Holdings, Inc..... 2,200 106
(a)Litton Industries, Inc............... 4,700 337
(a)Loral Space & Communications Ltd..... 19,100 344
Lucent Technologies, Inc................ 6,700 452
(a)Microsoft Corp....................... 24,900 2,246
Motorola, Inc........................... 8,900 843
(a)New Era of Networks, Inc............. 4,100 180
(a)Novell, Inc.......................... 11,900 315
(a)Oracle Corp.......................... 3,400 126
(a)Quantum Corp......................... 8,600 208
(a)Sun Microsystems, Inc................ 2,800 193
Texas Instruments, Inc.................. 2,200 319
(a)Uniphase Corp........................ 1,800 299
-------
11,551
-------
UTILITIES (0.3%)
Montana Power Co........................ 2,000 141
-------
TOTAL LONG-TERM INVESTMENTS (98.2%) (COST $38,538)....... 47,712
-------
<CAPTION>
PAR
VALUE
(000)
-------
SHORT-TERM INVESTMENT (2.5%)
<S> <C> <C>
REPURCHASE AGREEMENT (2.5%)
Chase Securities, Inc., 4.55%, dated $ 1,242
6/30/99, due 7/1/99, to be repurchased
at $1,242, collateralized by $1,155
U.S. Treasury Bonds, 7.25%, due 5/15/16
valued at $1,284 (COST $1,242)................... 1,242
-------
TOTAL INVESTMENTS (100.7%) (COST $39,780)................ 48,954
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.7%)............ (356)
-------
NET ASSETS (100%)........................................ $48,598
=======
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-33
<PAGE>
VAN KAMPEN EQUITY GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -------------------------------------------------------------------------
ASSETS:
Investments at Value (Cost $39,780)....................... $48,954
Receivable for:
Investments Sold........................................ 515
Fund Shares Sold........................................ 254
Dividends............................................... 25
Deferred Organizational Costs............................. 15
Other..................................................... 8
-------
Total Assets............................................ 49,771
-------
LIABILITIES:
Payable for:
Investments Purchased................................... 1,000
Distribution Fees....................................... 56
Fund Shares Redeemed.................................... 31
Investment Advisory Fees................................ 19
Professional Fees....................................... 18
Custody Fees............................................ 11
Shareholder Reporting Expenses.......................... 11
Administrative Fees..................................... 10
Directors' Fees and Expenses............................ 9
Transfer Agent Fees..................................... 6
Bank Overdraft.......................................... 2
-------
Total Liabilities..................................... 1,173
-------
NET ASSETS.................................................. $48,598
-------
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 4
Paid in Capital in Excess of Par.......................... 39,285
Net Unrealized Appreciation on Investments................ 9,174
Accumulated Net Realized Gain............................. 143
Accumulated Net Investment Loss........................... (8)
-------
NET ASSETS.................................................. $48,598
=======
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $17,185,350 and 1,370,069 Shares
Outstanding)............................................ $ 12.54
=======
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share x 100/ (100 - maximum sales charge)).............. $ 13.31
=======
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $23,977,419 and 1,926,071 Shares
Outstanding)*........................................... $ 12.45
=======
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $7,435,116 and 597,570 Shares Outstanding)*... $ 12.44
=======
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-34
<PAGE>
VAN KAMPEN EQUITY GROWTH FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- ------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 230
Interest.................................................. 85
------
Total Income............................................ 315
------
EXPENSES:
Investment Advisory Fees.................................. 274
Distribution Fees (Attributed to Classes A, B, and C of
$30, $163, and $58, respectively)....................... 251
Custodian Fees............................................ 85
Filing and Registration Fees.............................. 30
Administrative Fees....................................... 91
Professional Fees......................................... 25
Shareholder Reports....................................... 35
Amortization of Organizational Costs...................... 19
Directors' Fees and Expenses.............................. 9
Transfer Agent Fees....................................... 17
Other..................................................... 7
------
Total Expenses.......................................... 843
Less Expense Reductions................................. (164)
------
Net Expenses............................................ 679
------
Net Investment Income/Loss.................................. (364)
------
NET REALIZED GAIN/LOSS ON:
Investments............................................... 502
------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... 138
------
End of the Period
Investments............................................. 9,174
------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 9,036
------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. 9,538
------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $9,174
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-35
<PAGE>
VAN KAMPEN EQUITY GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 29, 1998*
JUNE 30, 1999 TO JUNE 30, 1998
(000) (000)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ (364) $ --
Net Realized Gain/Loss.................................... 502 5
Net Unrealized Appreciation/Depreciation.................. 9,036 138
------------- ---------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 9,174 143
------------- ---------------
DISTRIBUTIONS:
Net Realized Gain:
Class A................................................... (3) --
Class B................................................... (4) --
Class C................................................... (1) --
------------- ---------------
Net Decrease in Net Assets Resulting from Distributions... (8) --
------------- ---------------
CAPITAL SHARES TRANSACTIONS (1):
Subscribed................................................ 47,489 --
Distributions Reinvested.................................. 8 --
Redeemed.................................................. (13,208) --
------------- ---------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... 34,289 --
------------- ---------------
Total Increase/Decrease in Net Assets..................... 43,455 --
NET ASSETS--Beginning of Period............................. 5,143 5,000
------------- ---------------
NET ASSETS--End of Period (Including accumulated net
investment loss of $(8) at June 30, 1999)................. $ 48,598 $ 5,143
============= ===============
- ------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) CLASS A:
Shares:
Subscribed............................................. 1,629 200
Distributions Reinvested............................... -- --
Redeemed............................................... (459) --
------------- ---------------
Net Increase/Decrease in Class A Shares Outstanding...... 1,170 200
============= ===============
Dollars:
Subscribed............................................. $ 16,596 --
Distributions Reinvested............................... 3 --
Redeemed............................................... (4,778) --
------------- ---------------
Net Increase/Decrease.................................... $ 11,821 --
============= ===============
Ending Paid in Capital................................... $ 13,821 $ 2,000
============= ===============
CLASS B:
Shares:
Subscribed............................................. 2,258 150
Distributions Reinvested............................... -- --
Redeemed............................................... (482) --
------------- ---------------
Net Increase/Decrease in Class B Shares Outstanding...... 1,776 150
============= ===============
Dollars:
Subscribed............................................. $ 23,038 --
Distributions Reinvested............................... 4 --
Redeemed............................................... (5,054) --
------------- ---------------
Net Increase/Decrease $ 17,988 --
============= ===============
Ending Paid in Capital................................... $ 19,488 $ 1,500
============= ===============
CLASS C:
Shares:
Subscribed............................................. 788 150
Distributions Reinvested............................... -- --
Redeemed............................................... (340) --
------------- ---------------
Net Increase/Decrease in Class C Shares Outstanding 448 150
============= ===============
Dollars:
Subscribed............................................. $ 7,855 --
Distributions Reinvested............................... 1 --
Redeemed............................................... (3,376) --
------------- ---------------
Net Increase/Decrease.................................... $ 4,480 --
============= ===============
Ending Paid in Capital................................... $ 5,980 $ 1,500
============= ===============
- ------------------------------------------------------------------------------------------------------
* Commencement of operations
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-36
<PAGE>
VAN KAMPEN EQUITY GROWTH FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------------------------- --------------------------------- --------------
YEAR ENDED MAY 29, 1998* YEAR ENDED MAY 29, 1998* YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1999# TO JUNE 30, 1998 JUNE 30, 1999# TO JUNE 30, 1998 JUNE 30, 1999#
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD..... $ 10.291 $ 10.00 $ 10.284 $ 10.00 $ 10.284
-------------- --------------- -------------- --------------- --------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss............. (0.062) -- (0.144) -- (0.141)
Net Realized and Unrealized
Gain/Loss............................ 2.317 0.29 2.312 0.28 2.302
-------------- --------------- -------------- --------------- --------------
Total From Investment Operations....... 2.255 0.29 2.168 0.28 2.161
-------------- --------------- -------------- --------------- --------------
DISTRIBUTIONS
Net Realized Gain...................... (0.003) -- (0.003) -- (0.003)
-------------- --------------- -------------- --------------- --------------
NET ASSET VALUE, END OF PERIOD........... $ 12.543 $ 10.29 $ 12.449 $ 10.28 $ 12.442
============== =============== ============== =============== ==============
TOTAL RETURN (1)......................... 21.90% 2.90%** 21.14% 2.80%** 21.04%
============== =============== ============== =============== ==============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........ $ 17,185 $ 2,057 $ 23,978 $ 1,543 $ 7,435
Ratio of Expenses to Average Net
Assets................................. 1.50% 1.50% 2.25% 2.25% 2.25%
Ratio of Net Investment Income/Loss to
Average Net Assets..................... (0.57)% 0.51% (1.34)% (0.25)% (1.32)%
Portfolio Turnover Rate.................. 126% 19%** 126% 19%** 126%
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income/Loss.......................... $ 0.05 $ 0.02 $ 0.05 $ 0.02 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets......... 1.98% 4.06% 2.72% 4.81% 2.75%
Net Investment Income/Loss to Average
Net Assets........................... (1.05)% (2.05)% (1.81)% (2.81)% (1.81)%
<CAPTION>
CLASS C
----------------
MAY 29, 1998*
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1998
<S> <C>
- -----------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD..... $ 10.00
---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss............. --
Net Realized and Unrealized
Gain/Loss............................ 0.28
---------------
Total From Investment Operations....... 0.28
---------------
DISTRIBUTIONS
Net Realized Gain...................... --
---------------
NET ASSET VALUE, END OF PERIOD........... $ 10.28
===============
TOTAL RETURN (1)......................... 2.80%**
===============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........ $ 1,543
Ratio of Expenses to Average Net
Assets................................. 2.25%
Ratio of Net Investment Income/Loss to
Average Net Assets..................... (0.25)%
Portfolio Turnover Rate.................. 19%**
- -------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income/Loss.......................... $ 0.02
Ratios Before Expense Limitation:
Expenses to Average Net Assets......... 4.81%
Net Investment Income/Loss to Average
Net Assets........................... (2.81)%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
** Non-Annualized
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-37
<PAGE>
VAN KAMPEN EQUITY GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Equity Growth Fund (the "Fund") is organized as a separate
diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation, which
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective is to seek
long-term capital appreciation by investing primarily in growth-oriented equity
securities of medium and large capitalization companies. The Fund commenced
operations on May 29, 1998.
The Fund currently offers three classes of shares, Class A, Class B, and
Class C shares. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge of 1.00% imposed in the event
of certain redemptions within one year of the purchase. Class B and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
-----------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ ------- -------
<S> <C> <C>
First..................................... 5.00% 1.00%
Second.................................... 4.00% None
Third..................................... 3.00% None
Fourth.................................... 2.50% None
Fifth..................................... 1.50% None
Thereafter................................ None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the current bid and asked prices obtained from reputable
brokers. Debt securities purchased with remaining maturities of 60 days or less
are valued at amortized cost, if it approximates market value. All other
securities and assets for which market values
are not readily available are valued at fair value as determined in good faith
by the Board of Directors, although the actual calculations may be done by
others.
2. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization, and/or retention of the collateral or proceeds may be
subject to legal proceedings.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date.
Interest income is recognized on the accrual basis except where collection is in
doubt. Income, expenses (other than class specific expenses), and realized and
unrealized gains or losses are allocated to each class of shares based upon
their relative net assets. Distributions from the Fund are recorded on the
ex-distribution date.
4. ORGANIZATIONAL COSTS: The organizational costs of the Fund are being
amortized on a straight line basis over a period of five years beginning with
the Fund's commencement of operations. The Adviser has agreed that in the event
any of the initial shares of the Fund originally purchased by Van Kampen are
redeemed by the Fund during the amortization period, the Fund will be reimbursed
for any unamortized organizational costs in the same proportion as the number of
shares redeemed bears to the number of initial shares held at the time of
redemption.
5. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
At June 30, 1999, cost and unrealized appreciation/ depreciation for
U.S. Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- --------------------- -------- -------- -------------
<S> <C> <C> <C>
$40,175 $9,158 $(379) $8,779
</TABLE>
F-38
<PAGE>
VAN KAMPEN EQUITY GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
6. DISTRIBUTION OF INCOME AND GAINS: The amount and the character of income and
capital gain distributions to be paid by the Fund are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, and paid in capital in excess of par. For
the year ended June 30, 1999, approximately $356,000 has been reclassified from
accumulated net realized gain and posted to accumulated net investment loss.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment
Management Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary of
Morgan Stanley Dean Witter & Co., provide the Fund with investment advisory
services at a fee paid monthly and calculated at the annual rates based on
average daily net assets as indicated below. The Adviser has agreed to reduce
advisory fees payable to it and to reimburse the Fund if necessary, if the
annual operating expenses, as defined, expressed as a percentage of average
daily net assets, exceed the maximum ratios indicated as follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- --------------------- -------------- --------------
<S> <C> <C>
0.80% 1.50% 2.25%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$3,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides the
Fund with administrative services pursuant to an administrative agreement for a
monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the Fund, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B and Class C shares of the Fund, on an
annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $449,522 for Class A shares and deferred sales charges of $1,488,
$69,097, and $6,772 for Class A shares, Class B shares, and Class C shares,
respectively.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
During the year ended June 30, 1999, the Fund incurred approximately $2,000 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/dealer.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $73,882,000 and sales of approximately $40,725,000 of
investment securities other than long-term U.S. government securities and
short-term investments. There were no purchases or sales of long-term
U.S. government securities.
F-39
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen European Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen European Equity Fund
(the "Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the
results of its operations, the changes in its net assets and the financial
highlights for the period September 25, 1998 (commencement of operations)
through June 30, 1999, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at June 30, 1999 by correspondence with the custodian
and brokers, provides a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-40
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ----------------------------------------------------------------------
COMMON STOCKS (94.1%)
BELGIUM (0.5%)
Fortis 'B'.................................... 550 $ 17
G.I.B. Holdings Ltd........................... 427 16
------
33
------
DENMARK (2.4%)
Novo Nordisk A/S 'B'.......................... 860 93
Unidanmark A/S 'A' (Registered)............... 940 63
------
156
------
FINLAND (3.0%)
KCI Konecranes International plc.............. 525 18
Kone Oyj 'B'.................................. 290 36
Merita Ltd. 'A'............................... 14,200 81
Sampo Insurance Co., plc 'A'.................. 2,190 64
------
199
------
FRANCE (14.3%)
Alcatel....................................... 460 65
Axa S.A....................................... 330 40
Banque Nationale de Paris..................... 225 18
Compagnie de Saint-Gobain..................... 490 78
(a)CNP Assurances............................. 3,810 104
Elf Aquitaine................................. 455 67
Groupe Danone RFD............................. 240 62
Michelin (C.G.D.E.) 'B'....................... 1,940 80
Pernod-Ricard................................. 1,210 81
Rhone-Poulenc S.A. 'A'........................ 1,820 83
Schneider S.A................................. 1,570 88
Suez Lyonnaise des Eaux....................... 190 35
(a)Total S.A. 'B'............................. 1,035 134
------
935
------
GERMANY (8.1%)
Adidas-Salomon AG............................. 462 45
BASF AG....................................... 1,760 77
Bayerische AG................................. 1,275 81
Berliner KraftUnd Litch 'A'................... 2,701 42
Hoechst AG.................................... 1,873 85
Mannesmann AG................................. 150 22
Schering AG................................... 680 73
Siemens AG.................................... 250 19
Volkswagen AG................................. 1,380 89
------
533
------
IRELAND (1.9%)
Bank of Ireland............................... 5,320 90
Greencore Group plc........................... 12,300 38
------
128
------
ITALY (5.1%)
Banca Popolare di Bergamo..................... 3,910 86
Marzotto S.p.A................................ 4,630 36
Mediaset S.p.A................................ 9,400 84
Telecom Italia S.p.A.......................... 12,500 130
------
336
------
NETHERLANDS (5.8%)
ABN Amro Holdings N.V......................... 1,170 25
Akzo Nobel N.V................................ 2,180 92
Benckiser N.V. 'B'............................ 700 37
ING Groep N.V................................. 2,235 121
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------
<S> <C> <C>
Laurus N.V.................................... 1,094 $ 26
Philips Electronics N.V....................... 791 78
------
379
------
PORTUGAL (1.8%)
Banco Comercial Portugues S.A. (Registered)... 1,550 40
Electricidade de Portugal S.A................. 4,220 76
------
116
------
SPAIN (4.5%)
Banco Popular Espanol S.A..................... 550 40
Banco Santander Central Hispano S.A........... 3,340 35
Endesa S.A.................................... 3,260 69
Iberdrola S.A................................. 4,430 67
(a)Telefonica de Espana....................... 1,714 83
------
294
------
SWEDEN (5.6%)
Autoliv, Inc. SDR............................. 2,590 79
Ericsson LM 'B'............................... 1,200 39
ForeningsSparbanker AB........................ 1,300 18
Nordbanken Holding AB......................... 12,450 73
Svedala Industri AB........................... 3,410 62
Svenska Handelsbanken 'A'..................... 7,920 95
------
366
------
SWITZERLAND (12.1%)
Cie Financiere Richemont AG 'A'............... 108 208
Holderbank Financiere Glarus AG 'B'
(Bearer).................................... 85 101
Nestle S.A. (Registered)...................... 111 200
Novartis AG (Registered)...................... 65 95
Roche Holding AG-Genusshein................... 7 72
Schindler Holding AG (Registered)............. 25 39
Union Bank of Switzerland AG (Registered)..... 255 76
------
791
------
UNITED KINGDOM (29.0%)
Aegis Group plc............................... 23,560 52
Allied Domecq plc............................. 10,570 102
Allied Zurich plc............................. 7,950 100
BG plc........................................ 13,100 80
BOC Group plc................................. 4,350 85
British Telecommunications plc................ 7,950 133
Burmah Castrol plc............................ 3,591 68
Capital Radio plc............................. 5,950 79
Centrica plc.................................. 23,400 55
Diageo plc.................................... 5,760 60
Glaxo Wellcome plc............................ 1,200 33
Great Universal Stores plc.................... 8,800 98
Halma plc..................................... 24,800 41
Imperial Tobacco Group plc.................... 9,300 102
Lloyds TSB Group plc.......................... 4,000 54
Morgan Crucible Co. plc....................... 10,900 46
Prudential Corp. plc.......................... 5,800 85
Reckitt & Colman plc.......................... 11,294 118
Royal & Sun Alliance Insurance Group plc...... 6,473 58
Royal Bank of Scotland Group plc.............. 5,320 71
Sainsbury (J) plc............................. 5,000 32
Scottish & Southern Energy plc................ 8,200 84
Shell Transport & Trading Co. plc............. 5,600 42
Smith & Nephew plc............................ 26,700 81
SSL International plc......................... 3,200 37
Tesco plc..................................... 10,800 28
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-41
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM (CONT.)
United News & Media plc....................... 200 $ 2
WPP Group plc................................. 9,100 77
------
1,903
------
TOTAL COMMON STOCKS......................................... 6,169
------
PREFERRED STOCKS (3.1%)
GERMANY (3.1%)
Fresenius AG.................................. 684 120
Henkel KGaA AG................................ 735 52
Suedzucker AG-Varzug.......................... 84 33
------
TOTAL PREFERRED STOCKS...................................... 205
------
TOTAL LONG-TERM INVESTMENTS (97.2%) (COST $6,205)........... 6,374
------
<CAPTION>
PAR
VALUE
(000)
--------
SHORT-TERM INVESTMENT (5.4%)
<S> <C> <C>
REPURCHASE AGREEMENT (5.4%)
Chase Securities, Inc., 4.55%, dated 6/30/99, $ 354
due 7/1/99, to be repurchased at $354, collateralized
by $295 U.S. Treasury Bonds, 11.125%, due 8/15/03,
valued at $364 (COST $354)............................ 354
TOTAL INVESTMENTS IN SECURITIES (102.6%) (COST $6,559)...... 6,728
------
FOREIGN CURRENCY (0.3%) (COST $18).......................... 18
------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)
<S> <C> <C>
- --------------------------------------------------------------------
TOTAL INVESTMENTS (102.9%) (COST $6,577).................. $6,746
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.9%)............. (187)
------
NET ASSETS (100%)......................................... $6,559
======
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
RFD -- Ranked for Dividend
SDR -- Swedish Depositary Receipt
</TABLE>
- ----------------------------------------------------------------
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------- ------ ----------
<S> <C> <C>
Consumer Goods.............. $2,041 31.1%
Finance..................... 1,536 23.4
Services.................... 903 13.8
Energy...................... 785 12.0
Materials................... 664 10.1
Capital Equipment........... 445 6.8
------ ----
$6,374 97.2%
====== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-42
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- ------------------------------------------------------------------------
ASSETS:
Investments in Securities, at Value (Cost $6,559)......... $6,728
Foreign Currency (Cost $18)............................... 18
Cash...................................................... 8
Receivable for:
Investments Sold........................................ 33
Fund Shares Sold........................................ 25
Dividends............................................... 15
Foreign Withholding Tax Reclaim......................... 6
------
Total Assets.......................................... 6,833
------
LIABILITIES:
Payable for:
Investments Purchased................................... 144
Filing and Registration Fees............................ 34
Professional Fees....................................... 29
Custody Fees............................................ 23
Shareholder Reporting Expenses.......................... 14
Distribution Fees....................................... 8
Advisory Fees........................................... 7
Transfer Agent Fees..................................... 6
Directors' Fees and Expenses............................ 5
Administrative Fees..................................... 2
Fund Shares Redeemed.................................... 1
Other..................................................... 1
------
Total Liabilities..................................... 274
------
NET ASSETS.................................................. $6,559
======
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 1
Paid in Capital in Excess of Par.......................... 6,296
Net Unrealized Appreciation on Investments................ 169
Accumulated Net Investment Income......................... 73
Accumulated Net Realized Gain............................. 20
------
NET ASSETS.................................................. $6,559
======
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $2,020,496 and 189,743 Shares
Outstanding)............................................ $10.65
======
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share x 100/ (100 - maximum sales charge)).............. $11.30
======
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $3,081,562 and 290,172 Shares Outstanding)*... $10.62
======
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $1,456,542 and 137,493 Shares Outstanding)*... $10.59
======
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-43
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
SEPTEMBER 25, 1998* TO JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -----------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 130
Interest.................................................. 18
Less Foreign Taxes Withheld............................... (17)
-----
Total Income............................................. 131
-----
EXPENSES:
Shareholder Reports....................................... 51
Custodian Fees............................................ 39
Investment Advisory Fees.................................. 39
Filing and Registration Fees.............................. 38
Professional Fees......................................... 35
Distribution Fees (Attributed to Classes A, B, and C of
$3, $17, and $10, respectively)......................... 30
Administrative Fees....................................... 14
Directors' Fees and Expenses.............................. 6
Transfer Agent Fees....................................... 6
Other..................................................... 2
-----
Total Expenses........................................... 260
Less Expense Reductions.................................. (173)
-----
Net Expenses............................................. 87
-----
Net Investment Income/Loss.................................. 44
-----
NET REALIZED GAIN/LOSS ON:
Investments............................................... 20
Foreign Currency Transactions............................. (9)
-----
Net Realized Gain/Loss................................... 11
-----
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... --
-----
End of the Period:
Investments............................................. 169
-----
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 169
-----
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. 180
-----
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ 224
=====
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Commencement of operations
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-44
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
SEPTEMBER 25, 1998* TO JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ 44
Net Realized Gain/Loss.................................... 11
Net Unrealized Appreciation/Depreciation.................. 169
-------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 224
-------
DISTRIBUTIONS:
Net Investment Income:
Class A................................................... (3)
Class B................................................... (1)
Class C................................................... (1)
-------
Net Decrease in Net Assets Resulting from Distributions... (5)
-------
CAPITAL SHARES TRANSACTIONS (1):
Subscribed................................................ 4,084
Distributions Reinvested.................................. 1
Redeemed.................................................. (745)
-------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... 3,340
-------
Total Increase/Decrease in Net Assets..................... 3,559
NET ASSETS--Beginning of Period............................. 3,000
-------
NET ASSETS--End of Period (Including accumulated net
investment income of $73 at June 30, 1999)................ $ 6,559
=======
- -------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (000):
(1) Class A:
------------
Shares:
Subscribed (Initial Shares of 100)..................... 205
Distributions Reinvested............................... --
Redeemed............................................... (15)
-------
Net Increase/Decrease in Class A Shares Outstanding...... 190
=======
Dollars:
Subscribed............................................. $ 1,098
Distributions Reinvested............................... 1
Redeemed............................................... (157)
-------
Net Increase/Decrease.................................... $ 942
=======
Beginning Paid in Capital................................ $ 1,000
=======
Ending Paid in Capital................................... $ 1,942+
=======
Class B:
------------
Shares:
Subscribed (Initial Shares of 100)..................... 305
Distributions Reinvested............................... --
Redeemed............................................... (15)
-------
Net Increase/Decrease in Class B Shares Outstanding...... 290
=======
Dollars:
Subscribed............................................. $ 2,142
Distributions Reinvested............................... --
Redeemed............................................... (152)
-------
Net Increase/Decrease.................................... $ 1,990
=======
Beginning Paid in Capital................................ $ 1,000
=======
Ending Paid in Capital................................... $ 2,990+
=======
Class C:
------------
Shares:
Subscribed (Initial Shares of 100)..................... 179
Distributions Reinvested............................... --
Redeemed............................................... (42)
-------
Net Increase/Decrease in Class C Shares Outstanding...... 137
=======
Dollars:
Subscribed............................................. $ 844
Distributions Reinvested............................... --
Redeemed............................................... (436)
-------
Net Increase/Decrease.................................... $ 408
=======
Beginning Paid in Capital................................ $ 1,000
=======
Ending Paid in Capital................................... $ 1,408+
=======
</TABLE>
------------------
<TABLE>
<S> <C>
* Commencement of operations
+ Ending Paid in Capital amounts do not reflect permanent book
to tax differences.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-45
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------- ---------------------- ----------------------
SEPTEMBER 25, 1998* TO SEPTEMBER 25, 1998* TO SEPTEMBER 25, 1998* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1999# JUNE 30, 1999# JUNE 30, 1999#
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 10.000 $ 10.000 $ 10.000
--------------------- --------------------- ---------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................. 0.133 0.078 0.065
Net Realized and Unrealized Gain/Loss...... 0.541 0.548 0.534
--------------------- --------------------- ---------------------
Total From Investment Operations........... 0.674 0.626 0.599
--------------------- --------------------- ---------------------
DISTRIBUTIONS
Net Investment Income...................... (0.025) (0.006) (0.006)
--------------------- --------------------- ---------------------
NET ASSET VALUE, END OF PERIOD............... $ 10.649 $ 10.620 $ 10.593
===================== ===================== =====================
TOTAL RETURN (1)............................. 6.75%** 6.26%** 5.96%**
===================== ===================== =====================
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............ $ 2,020 $ 3,082 $ 1,457
Ratio of Expenses to Average Net Assets...... 1.70% 2.45% 2.45%
Ratio of Net Investment Income/Loss to
Average Net Assets......................... 1.64% 0.96% 0.81%
Portfolio Turnover Rate...................... 51%** 51%** 51%**
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During
the Period
Per Share Benefit to Net Investment
Income/Loss................................ $ 0.36 $ 0.34 $ 0.40
Ratios Before Expense Limitation:
Expenses to Average Net Assets............. 6.20% 6.61% 7.33%
Net Investment Income/Loss to Average Net
Assets................................... (2.87)% (3.20)% (4.13)%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
** Non-Annualized
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-46
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen European Equity Fund (the "Fund") is organized as a separate
diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation, which
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective seeks long-term
capital appreciation. The Fund commenced operations on September 25, 1998.
The Fund currently offers three classes of shares, Class A, Class B, and
Class C shares. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge of 1.00% imposed in the event
of certain redemptions within one year of the purchase. Class B and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
CONTINGENT DEFERRED
SALES CHARGE
-------------------
YEAR OF REDEMPTION CLASS B CLASS C
- --------------------------------------------- ----- -----
<S> <C> <C>
First........................................ 5.00% 1.00%
Second....................................... 4.00% None
Third........................................ 3.00% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Thereafter................................... None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the current bid and asked prices obtained from reputable
brokers. Debt securities purchased with remaining maturities of 60 days or less
are valued at amortized cost, if it approximates market value. All other
securities and assets for which market values are not readily available are
valued at fair value as determined in good faith by the Board of Directors,
although the actual calculations may be done by others.
2. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization, and/or retention of the collateral or proceeds may be
subject to legal proceedings.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date, net
of applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on an accrual basis except where
collection is in doubt. Income, expenses (other than class specific expenses),
and realized and unrealized gains or losses are allocated to each class of
shares based upon their relative net assets. Distributions from the Fund are
recorded on the ex-distribution date.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The Fund may enter into
foreign currency exchange contracts to attempt to protect securities and related
receivables and payables against changes in future foreign currency exchange
rates. A currency exchange contract is an agreement between two parties to buy
or sell currency at a set price on a future date. The market value of the
contract will fluctuate with changes in currency exchange rates. The contract is
marked-to-market daily and the change in market value is recorded by the Fund as
unrealized gain or loss on foreign currency translation.
Assets and liabilities denominated in foreign currencies and commitments under
forward currency contracts are translated into U.S. dollars at the mean of the
quoted bid and asked prices. Purchases and sales of portfolio securities are
translated at the rate of exchange prevailing when such securities were
purchased or sold. Income and expenses are
F-47
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
translated at rates prevailing when accrued. Realized and unrealized gains and
losses on securities are not segregated for financial reporting purposes from
amounts arising from changes in the market prices of securities. Realized gains
and losses on foreign currency includes the net realized amount from the sale of
the currency and the amount realized between trade date and settlement date on
security and income transactions. However, the foreign currency portion of gains
and losses realized on sales and maturities of foreign denominated debt
securities is treated as ordinary income for U.S. Federal income tax purposes.
Risks may arise upon entering into these contracts from the potential inability
of counterparties to meet the terms of their contracts. Risks may also arise
from the unanticipated movements in the value of a foreign currency relative to
the U.S. dollar.
5. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such
taxes are generally based on income earned or gains realized or repatriated.
Taxes are accrued and applied to net investment income, net realized capital
gains, and net unrealized appreciation, as applicable, as the income is earned
or capital gains are recorded.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- --------------------- -------- -------- -------------
<S> <C> <C> <C>
$6,565 $458 $(295) $163
</TABLE>
6. DISTRIBUTION OF INCOME AND GAINS: The amount and the character of income and
capital gain distributions to be paid by the Fund are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, and paid in capital in excess of par. For
the year ended June 30, 1999, approximately $43,000 has been reclassified from
paid in capital in excess of par with approximately $34,000 posted to
accumulated net investment income and approximately $9,000 posted to accumulated
net realized gain.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.), and Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., provide the Fund with investment advisory services at a fee
paid monthly and calculated at the annual rates based on average daily net
assets as indicated below. The Adviser has agreed to reduce advisory fees
payable to it and to reimburse the Fund, if necessary, if the annual operating
expenses, as defined, expressed as a percentage of average daily net assets,
exceed the maximum ratios indicated as follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- --------------------- -------------- --------------
<S> <C> <C>
1.00% 1.70% 2.45%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$3,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
At June 30, 1999, Van Kampen Funds, Inc. owned 53%, 35%, and 73% of the shares
outstanding of each Class A, B, and C shares in the Fund.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides the
Fund with administrative services pursuant to an administrative agreement for a
monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the portfolio, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
F-48
<PAGE>
VAN KAMPEN EUROPEAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the period ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $27,564 for Class A shares and deferred sales charges of $1,486 and
$1,142 for Class B shares and Class C shares, respectively.
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Trust Company ("MSTC"), a former affiliate of the
Subadvisers. On October 1, 1998, the Chase Manhattan Bank purchased MSTC.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
During the period ended June 30, 1999, the Fund incurred approximately $2,000 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/ dealer.
C. INVESTMENT TRANSACTIONS: For the period ended June 30, 1999, the Fund made
purchases of approximately $8,423,000 and sales of approximately $2,244,000 of
investment securities other than long-term U.S. government securities and
short-term investments. There were no purchases or sale of long-term U.S.
government securities.
F-49
<PAGE>
VAN KAMPEN FOCUS EQUITY FUND
(FORMERLY KNOWN AS VAN KAMPEN AGGRESSIVE EQUITY FUND)
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Aggressive Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Aggressive Equity Fund
(the "Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the
results of its operations, the changes in its net assets and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-50
<PAGE>
VAN KAMPEN FOCUS EQUITY FUND
(FORMERLY KNOWN AS VAN KAMPEN AGGRESSIVE EQUITY FUND)
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------------------
COMMON STOCKS (96.4%)
CAPITAL GOODS (24.3%)
AEROSPACE/DEFENSE (1.0%)
(a)Gulfstream Aerospace Corp........... 42,600 $ 2,878
--------
ELECTRICAL EQUIPMENT (5.8%)
General Electric Co.................... 141,200 15,956
--------
MANUFACTURING (DIVERSIFIED) (14.0%)
Textron, Inc........................... 77,500 6,379
Tyco International Ltd................. 227,900 21,594
United Technologies Corp............... 152,500 10,932
--------
38,905
--------
OFFICE EQUIPMENT & SUPPLIES (3.5%)
Pitney Bowes, Inc...................... 149,500 9,605
--------
TOTAL CAPITAL GOODS.................................... 67,344
--------
COMMUNICATION SERVICES (12.1%)
TELECOMMUNICATIONS (CELLULAR/WIRELESS) (5.0%)
(a)Associated Group, Inc. 'A'.......... 39,200 2,553
(a)Associated Group, Inc. 'B'.......... 174,100 11,349
--------
13,902
--------
TELECOMMUNICATIONS (LONG DISTANCE) (4.4%)
American Telephone & Telegraph Co...... 35,675 1,991
(a)MCI WorldCom, Inc................... 116,900 10,083
--------
12,074
--------
TELEPHONE (2.7%)
Bell Atlantic Corp..................... 115,200 7,531
--------
TOTAL COMMUNICATION SERVICES........................... 33,507
--------
CONSUMER CYCLICALS (13.6%)
RETAIL (BUILDING SUPPLIES) (2.4%)
Home Depot, Inc........................ 103,400 6,663
--------
RETAIL (GENERAL MERCHANDISE) (3.1%)
(a)Costco Cos., Inc.................... 106,000 8,486
--------
RETAIL (SPECIALTY) (6.1%)
(a)Abercrombie & Fitch Co. 'A'......... 250,000 12,000
Gap, Inc............................... 98,475 4,961
--------
16,961
--------
SERVICES (COMMERCIAL & CONSUMER) (2.0%)
(a)Nielsen Media Research, Inc......... 190,800 5,581
--------
TOTAL CONSUMER CYCLICALS............................... 37,691
--------
CONSUMER STAPLES (7.7%)
BROADCASTING (TV, RADIO, & CABLE) (5.3%)
(a)AT&T Corp. Liberty Media 'A'........ 57,400 2,109
(a)Chancellor Media Corp. 'A'.......... 48,300 2,663
(a)Clear Channel
Communications, Inc.................. 141,400 9,748
--------
14,520
--------
FOODS (1.2%)
(a)Keebler Foods Co.................... 111,600 3,390
--------
HOUSEHOLD PRODUCTS (NON-DURABLES) (1.2%)
Procter & Gamble Co.................... 38,400 3,427
--------
TOTAL CONSUMER STAPLES................................. 21,337
--------
FINANCIAL (3.0%)
BANKS (MAJOR REGIONAL) (1.6%)
Bank of New York Co., Inc.............. 121,600 4,461
--------
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
FINANCIAL (DIVERSIFIED) (1.4%)
Citigroup, Inc......................... 82,500 $ 3,919
--------
TOTAL FINANCIAL........................................ 8,380
--------
HEALTH CARE (13.0%)
HEALTH CARE (DIVERSIFIED) (6.7%)
Bristol-Myers Squibb Co................ 116,300 8,192
Warner-Lambert Co...................... 151,000 10,476
--------
18,668
--------
HEALTH CARE (DRUGS--GENERIC & OTHERS) (2.7%)
(a)Amgen, Inc.......................... 123,800 7,536
--------
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS) (3.6%)
Pfizer, Inc............................ 37,700 4,137
Schering-Plough Corp................... 109,300 5,793
--------
9,930
--------
TOTAL HEALTH CARE...................................... 36,134
--------
TECHNOLOGY (20.2%)
COMMUNICATION EQUIPMENT (4.1%)
(a)American Tower Corp. 'A'............ 245,900 5,902
Motorola, Inc.......................... 56,700 5,372
--------
11,274
--------
COMPUTERS (NETWORKING) (5.5%)
(a)Cisco Systems, Inc.................. 235,600 15,196
--------
COMPUTERS (SOFTWARE & SERVICES) (6.6%)
(a)America Online, Inc................. 35,700 3,945
(a)Juniper Networks, Inc............... 7,700 1,147
(a)Microsoft Corp...................... 145,700 13,141
--------
18,233
--------
ELECTRONICS (SEMICONDUCTORS) (2.0%)
Intel Corp............................. 95,400 5,676
--------
EQUIPMENT (SEMICONDUCTORS) (2.0%)
(a)Applied Materials, Inc.............. 75,900 5,607
--------
TOTAL TECHNOLOGY....................................... 55,986
--------
UTILITIES (2.5%)
ELECTRIC COMPANIES (2.5%)
Montana Power Co....................... 98,200 6,923
--------
TOTAL LONG-TERM INVESTMENTS (96.4%) (COST $228,806)...... 267,302
--------
<CAPTION>
PAR
VALUE
(000)
--------
SHORT-TERM INVESTMENT (2.6%)
<S> <C> <C>
REPURCHASE AGREEMENT (2.6%)
Chase Securities, Inc., 4.55%, dated $ 7,218
6/30/99, due 7/1/99, to be
repurchased at $7,219
collateralized by $6,705 U.S.
Treasury Bonds, 7.25%, due 5/15/16,
valued at $7,452 (COST $7,218)..... 7,218
TOTAL INVESTMENTS (99.0%) (COST $236,024)................ 274,520
--------
OTHER ASSETS IN EXCESS OF LIABILITIES (1.0%)............. 2,687
--------
NET ASSETS (100%)........................................ $277,207
========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-51
<PAGE>
VAN KAMPEN FOCUS EQUITY FUND
(FORMERLY KNOWN AS VAN KAMPEN AGGRESSIVE EQUITY FUND)
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
ASSETS:
Investments at Value (Cost $236,024)...................... $274,520
Receivable for:
Investments Sold........................................ 4,394
Fund Shares Sold........................................ 1,909
Dividends............................................... 65
Interest................................................ 1
Deferred Organizational Costs............................. 15
Other..................................................... 11
--------
Total Assets............................................ 280,915
--------
LIABILITIES:
Payable for:
Investments Purchased................................... 2,163
Fund Shares Redeemed.................................... 853
Distribution Fees....................................... 348
Investment Advisory Fees................................ 148
Administrative Fees..................................... 54
Transfer Agent Fees..................................... 46
Shareholder Reporting Expenses.......................... 33
Professional Fees....................................... 28
Directors' Fees and Expenses............................ 15
Custody Fees............................................ 13
Other..................................................... 7
--------
Total Liabilities....................................... 3,708
--------
NET ASSETS................................................ $277,207
========
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 12
Paid in Capital in Excess of Par.......................... 221,070
Unrealized Appreciation on Investments.................... 38,496
Accumulated Net Realized Gain............................. 17,644
Accumulated Net Investment Loss........................... (15)
--------
NET ASSETS.................................................. $277,207
========
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $73,828,526 and 3,212,182 Shares
Outstanding)............................................ $ 22.98
========
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100/ (100 - maximum sales charge)).............. $ 24.38
========
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $176,188,744 and 7,872,472 Shares
Outstanding)*........................................... $ 22.38
========
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $27,189,247 and 1,215,821 Shares
Outstanding)*........................................... $ 22.36
========
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-52
<PAGE>
VAN KAMPEN FOCUS EQUITY FUND
(FORMERLY KNOWN AS VAN KAMPEN AGGRESSIVE EQUITY FUND)
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 1,309
Interest.................................................. 431
-------
Total Income............................................. 1,740
-------
EXPENSES:
Investment Advisory Fees.................................. 2,068
Distribution Fees (Attributed to Classes A, B, and C of
$155, $1,433, and $244, respectively)................... 1,832
Administrative Fees....................................... 579
Transfer Agent Fees....................................... 157
Custodian Fees............................................ 96
Shareholder Reports....................................... 90
Filing and Registration Fees.............................. 52
Professional Fees......................................... 49
Directors' Fees and Expenses.............................. 11
Amortization of Organizational Costs...................... 11
Other..................................................... 8
-------
Total Expenses........................................... 4,953
Less Expense Reductions.................................. (252)
-------
Net Expenses............................................. 4,701
-------
Net Investment Income/Loss............................... (2,961)
-------
NET REALIZED GAIN/LOSS ON:
Investments............................................... 24,769
Securities Sold Short..................................... (176)
-------
Net Realized Gain/Loss................................... 24,593
-------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... 6,123
-------
End of the Period
Investments.............................................. 38,496
-------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 32,373
-------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. 56,966
-------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $54,005
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-53
<PAGE>
VAN KAMPEN FOCUS EQUITY FUND
(FORMERLY KNOWN AS VAN KAMPEN AGGRESSIVE EQUITY FUND)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ (2,961) $ (1,097)
Net Realized Gain/Loss.................................... 24,593 23,029
Net Unrealized Appreciation/Depreciation.................. 32,373 2,644
------------- -------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 54,005 24,576
------------- -------------
DISTRIBUTIONS:
Net Realized Gain:
Class A................................................... (4,962) (3,187)
Class B................................................... (11,751) (5,696)
Class C................................................... (2,021) (1,157)
------------- -------------
Net Decrease in Net Assets Resulting from Distributions... (18,734) (10,040)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 95,378 171,376
Distributions Reinvested.................................. 17,353 9,563
Redeemed.................................................. (90,199) (42,384)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... 22,532 138,555
------------- -------------
Total Increase/Decrease in Net Assets..................... 57,803 153,091
NET ASSETS--Beginning of Period............................. 219,404 66,313
------------- -------------
NET ASSETS--End of Period (Including accumulated net
investment loss of $(15) and $(4), respectively).......... $ 277,207 $ 219,404
============= =============
- ----------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) CLASS A
Shares:
Subscribed............................................. 1,623 3,038
Distributions Reinvested............................... 266 177
Redeemed............................................... (1,877) (1,340)
------------- -------------
Net Increase/Decrease in Class A Shares Outstanding...... 12 1,875
============= =============
Dollars:
Subscribed............................................. $ 31,396 $ 59,406
Distributions Reinvested............................... 4,594 3,064
Redeemed............................................... (34,991) (26,003)
------------- -------------
Net Increase/Decrease.................................... $ 999 $ 36,467
============= =============
Ending Paid in Capital................................... $ 57,462+ $ 56,463
============= =============
CLASS B:
Shares:
Subscribed............................................. 2,694 4,818
Distributions Reinvested............................... 650 314
Redeemed............................................... (2,106) (539)
------------- -------------
Net Increase/Decrease in Class B Shares Outstanding...... 1,238 4,593
============= =============
Dollars:
Subscribed............................................. $ 50,034 $ 92,956
Distributions Reinvested............................... 10,965 5,363
Redeemed............................................... (38,411) (10,091)
------------- -------------
Net Increase/Decrease.................................... $ 22,588 $ 88,228
============= =============
Ending Paid in Capital................................... $ 142,680+ $ 120,092
============= =============
CLASS C:
Shares:
Subscribed............................................. 744 982
Distributions Reinvested............................... 106 67
Redeemed............................................... (900) (343)
------------- -------------
Net Increase/Decrease in Class C Shares Outstanding...... (50) 706
============= =============
Dollars:
Subscribed............................................. $ 13,948 $ 19,014
Distributions Reinvested............................... 1,794 1,136
Redeemed............................................... (16,797) (6,290)
------------- -------------
Net Increase/Decrease.................................... $ (1,055) $ 13,860
============= =============
Ending Paid in Capital................................... $ 20,928+ $ 21,983
============= =============
</TABLE>
- ---------------
<TABLE>
<S> <C>
+ Ending Paid in Capital amounts do not reflect permanent book
to tax differences.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-54
<PAGE>
VAN KAMPEN FOCUS EQUITY FUND
(FORMERLY KNOWN AS VAN KAMPEN AGGRESSIVE EQUITY FUND)
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------- JANUARY 2, 1996*
SELECTED PER SHARE DATA AND RATIOS 1999 # 1998 # 1997 TO JUNE 30, 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD..... $20.007 $ 16.98 $ 14.40 $ 12.00
------- ------- ------- ---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss............. (0.141) (0.07) 0.01 0.06
Net Realized and Unrealized
Gain/Loss............................ 4.712 5.03 3.95 2.40
------- ------- ------- ---------------
Total From Investment Operations....... 4.571 4.96 3.96 2.46
------- ------- ------- ---------------
DISTRIBUTIONS
Net Investment Income.................. -- -- (0.03) (0.06)
Net Realized Gain...................... (1.594) (1.93) (1.35) --
------- ------- ------- ---------------
Total Distributions.................... (1.594) (1.93) (1.38) (0.06)
------- ------- ------- ---------------
NET ASSET VALUE, END OF PERIOD........... $22.984 $ 20.01 $ 16.98 $ 14.40
======= ======= ======= ===============
TOTAL RETURN (1)......................... 25.57% 30.93% 28.93% 20.52%**
======= ======= ======= ===============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........ $73,829 $64,035 $22,521 $ 5,382
Ratio of Expenses to Average Net
Assets................................. 1.50% 1.50% 1.57% 2.03%
Ratio of Net Investment Income/Loss to
Average Net Assets..................... (0.73)% (0.37)% (0.04)% 1.22%
Portfolio Turnover Rate.................. 282% 308% 241% 204%**
- ------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income/Loss.......................... $ 0.02 $ 0.04 $ 0.02 $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net Assets......... 1.61% 1.71% 2.38% 3.26%
Net Investment Income/Loss to Average
Net Assets........................... (0.84)% (0.59)% (0.85)% (0.01)%
Ratio of Expenses to Average Net Assets
excluding dividend expense on
securities sold short.................. 1.50% 1.50% 1.50% 1.50%
- ------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-------------------------------------------------------
YEAR ENDED JUNE 30,
----------------------------------- JANUARY 2, 1996*
SELECTED PER SHARE DATA AND RATIOS 1999 # 1998 # 1997 TO JUNE 30, 1996
<S> <C> <C> <C> <C>
- -----------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD..... $ 19.670 $ 16.85 $ 14.38 $ 12.00
-------- -------- ------- ---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss............. (0.282) (0.21) (0.02) 0.03
Net Realized and Unrealized
Gain/Loss............................ 4.586 4.96 3.86 2.39
-------- -------- ------- ---------------
Total From Investment Operations....... 4.304 4.75 3.84 2.42
-------- -------- ------- ---------------
DISTRIBUTIONS
Net Investment Income.................. -- -- (0.02) (0.04)
Net Realized Gain...................... (1.594) (1.93) (1.35) --
-------- -------- ------- ---------------
Total Distributions.................... (1.594) (1.93) (1.37) (0.04)
-------- -------- ------- ---------------
NET ASSET VALUE, END OF PERIOD........... $ 22.380 $ 19.67 $ 16.85 $ 14.38
======== ======== ======= ===============
TOTAL RETURN (1)......................... 24.59% 29.94% 28.01% 20.18%**
======== ======== ======= ===============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........ $176,189 $130,497 $34,382 $ 2,426
Ratio of Expenses to Average Net
Assets................................. 2.25% 2.25% 2.32% 2.67%
Ratio of Net Investment Income/Loss to
Average Net Assets..................... (1.50)% (1.11)% (0.83)% 0.43%
Portfolio Turnover Rate.................. 282% 308% 241% 204%**
- ------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income/Loss.......................... $ 0.02 $ 0.04 $ 0.02 $ 0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets......... 2.36% 2.47% 2.88% 3.79%
Net Investment Income/Loss to Average
Net Assets........................... (1.61)% (1.34)% (1.43)% (0.69)%
Ratio of Expenses to Average Net Assets
excluding dividend expense on
securities sold short.................. 2.25% 2.25% 2.25% 2.25%
- ------------------------------------------------------------------------------------------------ ---------------------------------
- ----------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------- JANUARY 2, 1996*
SELECTED PER SHARE DATA AND RATIOS 1999 # 1998 # 1997 TO JUNE 30, 1996
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 19.655 $ 16.83 $14.37 $ 12.00
-------- ------- ------ ---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................................ (0.278) (0.21) (0.06) 0.03
Net Realized and Unrealized Gain/Loss..................... 4.580 4.97 3.89 2.38
-------- ------- ------ ---------------
Total From Investment Operations.......................... 4.302 4.76 3.83 2.41
-------- ------- ------ ---------------
DISTRIBUTIONS
Net Investment Income..................................... -- -- (0.02) (0.04)
Net Realized Gain......................................... (1.594) (1.93) (1.35) --
-------- ------- ------ ---------------
Total Distributions....................................... (1.594) (1.93) (1.37) (0.04)
-------- ------- ------ ---------------
NET ASSET VALUE, END OF PERIOD.............................. $ 22.363 $ 19.66 $16.83 $ 14.37
======== ======= ====== ===============
TOTAL RETURN (1)............................................ 24.67% 29.90% 28.04% 20.10%**
-------- ------- ------ ---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $ 27,189 $24,872 $9,410 $ 2,582
Ratio of Expenses to Average Net Assets..................... 2.25% 2.25% 2.32% 2.67%
Ratio of Net Investment Income/Loss to Average Net Assets... (1.48)% (1.13)% (0.77)% 0.44%
Portfolio Turnover Rate..................................... 282% 308% 241% 204%**
- -------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income/Loss........... $ 0.02 $ 0.04 $ 0.02 $ 0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 2.36% 2.25% 3.23% 3.80%
Net Investment Income/Loss to Average Net Assets.......... (1.59)% (1.35)% (1.67)% (0.69)%
Ratio of Expenses to Average Net Assets excluding dividend
expense
on securities sold short.................................. 2.25% 2.25% 2.25% 2.25%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
** Non-Annualized
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-55
<PAGE>
VAN KAMPEN FOCUS EQUITY FUND
(FORMERLY KNOWN AS VAN KAMPEN AGGRESSIVE EQUITY FUND)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Aggressive Equity Fund (the "Fund") is organized as a separate
non-diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation,
which is registered as an open-end management investment corporation, under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to seek capital appreciation by investing primarily in a non-diversified
portfolio of corporate equity and equity linked securities. The Fund commenced
operations on January 2, 1996.
The Fund currently offers three classes of shares, Class A, Class B, and
Class C shares. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge of 1.00% imposed in the event
of certain redemptions within one year of the purchase. Class B and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First............................... 5.00% 1.00%
Second.............................. 4.00% None
Third............................... 3.00% None
Fourth.............................. 2.50% None
Fifth............................... 1.50% None
Thereafter.......................... None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the current bid and asked prices obtained from reputable
brokers. Debt securities purchased with remaining maturities of 60 days or less
are valued at amortized cost, if it approximates market value. All other
securities and assets for which market values are not readily available are
valued at fair value as determined in good faith by the Board of Directors,
although the actual calculations may be done by others.
2. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date.
Interest income is recognized on an accrual basis except where collection is in
doubt. Income, expenses (other than class specific expenses), and realized and
unrealized gains or losses are allocated to each class of shares based upon
their relative net assets. Distributions from the Fund are recorded on the
ex-distribution date.
4. SHORT SALES: The Fund may sell securities short. A short sale is a
transaction in which the Fund sells securities it may or may not own, but has
borrowed, in anticipation of a decline in the market price of the securities.
The Fund is obligated to purchase securities at the market price to replace the
borrowed securities at the time of replacement. The Fund may have to pay a
premium to borrow the securities as well as pay dividends or interest payable on
the securities until they are replaced. The Fund's obligation to replace the
securities borrowed in connection with a short sale will generally be secured by
collateral deposited with the broker that consists of cash, U.S. government
securities, or other liquid, high grade debt obligations. In addition, the Fund
will place in a segregated account with its Custodian an amount of cash, U.S.
government securities, or other liquid high grade debt obligations equal to the
difference, if any, between (1) the market value of the securities sold at the
time they were sold short, and (2) any cash, U.S. government securities, or
other liquid high grade debt obligations deposited as collateral with the broker
in connection with the short sale (not including the proceeds of the short
sale). Short sales by the Fund involve certain risks and special considerations.
Possible losses from short sales differ from
F-56
<PAGE>
VAN KAMPEN FOCUS EQUITY FUND
(FORMERLY KNOWN AS VAN KAMPEN AGGRESSIVE EQUITY FUND)
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
losses that could be incurred from the purchase of a security, because losses
from short sales may be unlimited, whereas losses from purchases cannot exceed
the total amount invested.
5. ORGANIZATIONAL COSTS: The organizational costs of the Fund are being
amortized on a straight line basis over a period of five years beginning with
the Fund's commencement of operations. The Adviser has agreed that in the event
any of the initial shares of the Fund originally purchased by Van Kampen are
redeemed by the Fund during the amortization period, the Fund will be reimbursed
for any unamortized organizational costs in the same proportion as the number of
shares redeemed bears to the number of initial shares held at the time of
redemption.
6. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPECIATION
(000) (000) (000) (000)
- -------- -------- -------- -------------
<S> <C> <C> <C>
$236,420 $40,268 $(2,168) $38,100
</TABLE>
7. DISTRIBUTION OF INCOME AND GAINS: The amount and the character of income and
capital gain distributions to be paid by the Fund are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, and paid in capital. For the year ended
June 30, 1999 approximately $2,962,000 has been reclassified from accumulated
net realized gain/loss with approximately $2,950,000 posted to accumulated net
investment income/loss and approximately $12,000 posted to paid in capital.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., provide the Fund with investment advisory services at a fee
paid monthly and calculated at the annual rates based on average daily net
assets as indicated below. The Adviser has agreed to reduce advisory fees
payable to it and to reimburse the Fund, if necessary, if the annual operating
expenses, as defined, expressed as a percentage of average daily net assets,
exceed the maximum ratios indicated as follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
ADVISORY MAX. OPERATING MAX. OPERATING
FEE EXPENSE RATIO EXPENSE RATIO
- -------- -------------- --------------
<S> <C> <C>
0.90% 1.50% 2.25%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$9,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides the
Fund with administrative services pursuant to an administrative agreement for a
monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the Fund, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $584,668 for Class A shares and deferred sales charges of $613,437
and $30,933 for Class B shares and Class C shares, respectively.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
F-57
<PAGE>
VAN KAMPEN FOCUS EQUITY FUND
(FORMERLY KNOWN AS VAN KAMPEN AGGRESSIVE EQUITY FUND)
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
During the year ended June 30, 1999, the Fund incurred approximately $14,000 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/ dealer.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $631,670,000 and sales of approximately $630,129,000
of investment securities other than long-term U.S. government securities and
short-term investments. There were no purchases or sales of long-term U.S.
government securities.
F-58
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Global Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Global Equity Fund (the
"Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the results of
its operations, the changes in its net assets and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1999 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-59
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------------------
COMMON STOCKS (96.5%)
AUSTRALIA (0.9%)
CSR Ltd................................ 2,291,600 $ 6,528
--------
BELGIUM (1.0%)
Delhaize Freres et Cie 'Le Lion'
S.A.................................. 84,360 7,191
--------
CANADA (2.4%)
BCT.Telus Communications, Inc.......... 281,524 6,761
BCT.Telus Communications, Inc. 'A'..... 93,841 2,219
Potash Corp. of Saskatchewan, Inc...... 131,600 6,798
(a)Renaissance Energy Ltd.............. 130,000 1,746
--------
17,524
--------
DENMARK (0.5%)
Danisco A/S............................ 82,550 3,726
--------
FRANCE (10.1%)
Bongrain S.A........................... 17,664 6,675
Elf Aquitaine.......................... 100,760 14,805
France Telecom S.A..................... 149,900 11,338
Groupe Danone RFD...................... 54,800 14,146
Michelin (C.G.D.E.) 'B'................ 82,420 3,376
Pernod-Ricard.......................... 74,200 4,980
Rhone-Poulenc S.A. 'A'................. 221,500 10,134
Scor................................... 171,450 8,515
--------
73,969
--------
GERMANY (3.8%)
BASF AG................................ 264,350 11,628
Bayer AG............................... 138,100 5,753
Veba AG................................ 182,400 10,773
--------
28,154
--------
IRELAND (2.4%)
Bank of Ireland........................ 725,436 12,207
Green Property plc..................... 988,900 5,463
--------
17,670
--------
ITALY (3.0%)
Mediaset S.p.A......................... 1,029,600 9,164
Telecom Italia S.p.A................... 2,326,400 12,635
--------
21,799
--------
JAPAN (9.3%)
Daiichi Pharmaceutical Co., Ltd........ 457,000 7,101
Fuji Photo Film Co..................... 313,000 11,860
Hitachi Ltd............................ 665,000 6,244
KAO Corp............................... 607,000 17,074
Nippon Telegraph & Telephone Corp.
ADR.................................. 1,905 22,223
Sumitomo Marine & Fire Insurance Co.... 626,000 3,781
--------
68,283
--------
NETHERLANDS (4.4%)
ABN Amro Holding N.V................... 316,300 6,858
Benckiser N.V. 'B'..................... 135,935 7,264
ING Groep N.V.......................... 201,980 10,949
Philips Electronics N.V................ 76,728 7,578
--------
32,649
--------
PORTUGAL (0.7%)
Cimpor-Cimentos de Portugal S.A........ 192,720 $ 4,975
--------
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
SPAIN (3.5%)
Iberdrola S.A.......................... 738,500 11,263
(a)Telefonica de Espana................ 302,302 14,580
--------
25,843
--------
SWEDEN (0.9%)
Nordbanken Holding AB.................. 1,120,650 6,576
--------
SWITZERLAND (8.9%)
Cie Financiere Richemont AG 'A'........ 13,720 26,437
Forbo Holding AG (Registered).......... 13,100 5,217
Holderbank Financiere Glarus AG 'B'
(Bearer)............................. 7,404 8,756
Nestle S.A. (Registered)............... 11,680 21,084
Swisscom AG (Registered)............... 10,500 3,958
--------
65,452
--------
UNITED KINGDOM (11.0%)
Allied Domecq plc...................... 1,047,200 10,110
Blue Circle Industries plc............. 823,750 5,484
Burmah Castrol plc..................... 409,487 7,777
Imperial Tobacco Group plc............. 665,300 7,262
Invensys plc........................... 1,447,940 6,858
Reckitt & Colman plc................... 1,353,243 14,121
Royal & Sun Alliance Insurance Group
plc.................................. 1,138,911 10,222
Sainsbury (J) plc...................... 1,479,600 9,336
Wolseley plc........................... 618,100 4,656
WPP Group plc.......................... 633,000 5,357
--------
81,183
--------
UNITED STATES (33.7%)
Albertson's, Inc....................... 446,418 23,018
Aluminum Co. of America................ 68,000 4,208
(a)BJ's Wholesale Club, Inc............ 273,200 8,213
Boise Cascade Corp..................... 135,900 5,844
Borg-Warner Automotive, Inc............ 126,450 6,955
(a)Cadiz Land Co., Inc................. 403,898 3,812
Chase Manhattan Corp................... 88,950 7,705
COMSAT Corp............................ 453,700 14,745
(a)Data General Corp................... 522,100 7,603
Enhance Financial Services Group,
Inc.................................. 393,000 7,762
FINOVA Group, Inc...................... 192,605 10,136
(a)GenRad, Inc......................... 415,500 8,648
Georgia-Pacific Corp................... 79,700 3,776
Goodrich (B.F.) Co..................... 169,200 7,191
Houghton Mifflin Co.................... 350,963 16,517
IBP, Inc............................... 200,000 4,750
MBIA, Inc.............................. 215,110 13,928
Mellon Bank Corp....................... 312,100 11,353
(a)NCR Corp............................ 98,900 4,828
(a)Noble Drilling Corp................. 190,700 3,754
(a)Ocean Energy, Inc................... 498,070 4,794
Pharmacia & Upjohn, Inc................ 33,200 1,886
Philip Morris Cos., Inc................ 640,970 25,759
Rite Aid Corp.......................... 143,400 3,531
Sears, Roebuck & Co.................... 6,500 290
Tenneco, Inc........................... 149,400 3,567
Terra Nova (Bermuda) Holdings Ltd.
'A'.................................. 199,100 5,363
UNITED STATES (CONT.)
Tupperware Corp........................ 320,400 $ 8,170
Unicom Corp............................ 337,700 13,023
U.S. Bancorp........................... 105,600 3,590
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-60
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
UST Corp............................... 124,100 3,754
--------
248,473
--------
TOTAL COMMON STOCKS..................................... 709,995
--------
PREFERRED STOCK (0.8%)
GERMANY (0.8%)
Volkswagen AG.......................... 163,600 6,149
--------
TOTAL LONG-TERM INVESTMENTS (97.3%) (COST $654,745)..... 716,144
--------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<S> <C> <C>
- --------------------------------------------------------------------
SHORT-TERM INVESTMENT (2.7%)
REPURCHASE AGREEMENT (2.7%)
Chase Securities, Inc., 4.55%, dated
6/30/99, $ 19,800
due 7/1/99, to be repurchased at $19,803,
collateralized by $13,255 U.S. Treasury
Bonds, 11.25%, due 2/15/15, valued at
$20,426 (COST $19,800)............................ $ 19,800
--------
TOTAL INVESTMENTS IN SECURITIES (100.0%) (COST
$674,545)............................................. 735,944
<CAPTION>
PAR
VALUE VALUE
(000) (000)
- --------------------------------------------------------------------
<S> <C> <C>
FOREIGN CURRENCY (0.1%) (COST $1,140)................... 1,139
--------
TOTAL INVESTMENTS (100.1%) (COST $675,685).............. 737,083
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.1%)........... (873)
--------
NET ASSETS (100%)....................................... $736,210
========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
ADR -- American Depositary Receipt
RFD -- Ranked for Dividend
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------- -------- ----------
<S> <C> <C>
Consumer Goods.............................................. $227,232 30.9%
Services.................................................... 162,862 22.1
Finance..................................................... 131,976 17.9
Materials................................................... 73,622 10.0
Energy...................................................... 64,180 8.7
Capital Equipment........................................... 45,847 6.3
Diversified Operations...................................... 10,425 1.4
-------- ----
$716,144 97.3%
======== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-61
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
ASSETS:
Investments in Securities, at Value (Cost $674,545)....... $735,944
Foreign Currency (Cost $1,140)............................ 1,139
Receivable for:
Dividends............................................... 2,320
Foreign Withholding Tax Reclaim......................... 678
Investments Sold........................................ 498
Fund Shares Sold........................................ 379
Interest................................................ 3
Deferred Organizational Costs............................. 15
Other..................................................... 90
--------
Total Assets............................................ 741,066
--------
LIABILITIES:
Payable for:
Investments Purchased................................... 1,371
Fund Shares Redeemed.................................... 1,175
Distribution Fees....................................... 1,132
Investment Advisory Fees................................ 605
Administrative Fees..................................... 152
Transfer Agent Fees..................................... 101
Custody Fees............................................ 96
Shareholder Reporting Expenses.......................... 88
Professional Fees....................................... 73
Bank Overdraft.......................................... 22
Directors' Fees and Expenses............................ 41
--------
Total Liabilities....................................... 4,856
--------
NET ASSETS................................................ $736,210
========
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 64
Paid in Capital in Excess of Par.......................... 650,388
Net Unrealized Appreciation on Investments and Foreign
Currency Translations................................... 61,356
Accumulated Net Realized Gain............................. 24,214
Undistributed Net Investment Income....................... 188
--------
NET ASSETS.................................................. $736,210
========
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $76,730,861 and 6,690,456 Shares
Outstanding)............................................ $ 11.47
========
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100/ (100 - maximum sales charge)).............. $ 12.17
========
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $596,339,278 and 52,200,891 Shares
Outstanding)*........................................... $ 11.42
========
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $63,139,799 and 5,527,471 Shares
Outstanding)*........................................... $ 11.42
========
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-62
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 15,474
Interest.................................................. 1,303
Less Foreign Taxes Withheld............................... (1,258)
--------
Total Income............................................. 15,519
--------
EXPENSES:
Investment Advisory Fees.................................. 7,424
Distribution Fees (Attributed to Classes A, B, and C of
$191, $6,007, and $657, respectively)................... 6,855
Administrative Fees....................................... 1,867
Shareholder Reports....................................... 311
Transfer Agent Fees....................................... 264
Custodian Fees............................................ 214
Professional Fees......................................... 115
Filing and Registration fees.............................. 75
Amortization of Organizational Costs...................... 38
Directors' Fees and Expenses.............................. 32
Other..................................................... 33
--------
Total Expenses........................................... 17,228
--------
Net Investment Income/Loss.................................. (1,709)
--------
NET REALIZED GAIN/LOSS ON:
Investments............................................... 24,305
Foreign Currency Transactions............................. (535)
--------
Net Realized Gain/Loss................................... 23,770
--------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... 61,355
--------
End of the Period:
Investments............................................. 61,399
Foreign Currency Translations........................... (43)
--------
61,356
--------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 1
--------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. 23,771
--------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ 22,062
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-63
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 29, 1997* TO
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ (1,709) $ 844
Net Realized Gain/Loss.................................... 23,770 1,689
Net Unrealized Appreciation/Depreciation.................. 1 61,355
------------- -------------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 22,062 63,888
------------- -------------------
DISTRIBUTIONS:
Net Investment Income:
Class A................................................... (532) (88)
Class B................................................... (472) (188)
Class C................................................... (52) (18)
In Excess of Net Investment Income:
Class A................................................... (94) --
Class B................................................... (83) --
Class C................................................... (9) --
------------- -------------------
(1,242) (294)
------------- -------------------
Net Realized Gain:
Class A................................................... (97) --
Class B................................................... (796) --
Class C................................................... (87) --
------------- -------------------
(980) --
------------- -------------------
Net Decrease in Net Assets Resulting from Distributions... (2,222) (294)
------------- -------------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 166,640 739,265
Distributions Reinvested.................................. 2,068 276
Redeemed.................................................. (225,647) (29,826)
------------- -------------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... (56,939) 709,715
------------- -------------------
Total Increase/Decrease in Net Assets..................... (37,099) 773,309
NET ASSETS--Beginning of Period............................. 773,309 --
------------- -------------------
NET ASSETS--End of Period (Including undistributed net
investment income of $188 and $1,301, respectively)....... $ 736,210 $ 773,309
============= ===================
- -----------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) Class A:
Shares:
Subscribed............................................. 7,057 7,876
Distributions Reinvested............................... 60 8
Redeemed............................................... (7,666) (645)
------------- -------------------
Net Increase/Decrease in Class A Shares Outstanding...... (549) 7,239
============= ===================
Dollars:
Subscribed............................................. $ 76,578 $ 81,031
Distributions Reinvested............................... 652 78
Redeemed............................................... (82,720) (7,009)
------------- -------------------
Net Increase/Decrease.................................... $ (5,490) $ 74,100
============= ===================
Ending Paid in Capital................................... $ 68,606+ $ 74,096
============= ===================
Class B:
- ------------------------------------------------------------
Shares:
Subscribed............................................. 7,094 57,900
Distributions Reinvested............................... 118 19
Redeemed............................................... (11,280) (1,650)
------------- -------------------
Net Increase/Decrease in Class B Shares Outstanding...... (4,068) 56,269
============= ===================
Dollars:
Subscribed............................................. $ 75,705 $ 588,891
Distributions Reinvested............................... 1,280 180
Redeemed............................................... (120,388) (17,780)
------------- -------------------
Net Increase/Decrease.................................... $ (43,403) $ 571,291
============= ===================
Ending Paid in Capital................................... $ 527,856+ $ 571,259
============= ===================
Class C:
- ------------------------------------------------------------
Shares:
Subscribed............................................. 1,344 6,752
Distributions Reinvested............................... 13 2
Redeemed............................................... (2,112) (472)
------------- -------------------
Net Increase in Class C Shares Outstanding............... (755) 6,282
============= ===================
Dollars:
Subscribed............................................. $ 14,357 $ 69,343
Distributions Reinvested............................... 136 18
Redeemed............................................... (22,539) (5,037)
------------- -------------------
Net Increase/Decrease.................................... $ (8,046) $ 64,324
============= ===================
Ending Paid in Capital................................... $ 56,274+ $ 64,320
============= ===================
- ---------------
* Commencement of operations
+ Ending Paid in Capital amounts do not reflect permanent
book to tax differences.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-64
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------------- -----------------------------------
YEAR ENDED OCTOBER 29, 1997* YEAR ENDED OCTOBER 29, 1997*
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1999# TO JUNE 30, 1998 JUNE 30, 1999# TO JUNE 30, 1998
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD..... $ 11.122 $ 10.00 $ 11.076 $ 10.00
-------------- ---------------- -------------- ----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss............. 0.047 0.06 (0.033) 0.01
Net Realized and Unrealized Gain/Loss.. 0.404 1.08 0.405 1.07
-------------- ---------------- -------------- ----------------
Total From Investment Operations....... 0.451 1.14 0.372 1.08
-------------- ---------------- -------------- ----------------
DISTRIBUTIONS
Net Investment Income.................. (0.076) (0.02) (0.008) --
In Excess of Net Investment Income..... (0.014) -- (0.002) --
Net Realized Gain...................... (0.014) -- (0.014) --
-------------- ---------------- -------------- ----------------
Total Distributions.................... (0.104) (0.02) (0.024) --
-------------- ---------------- -------------- ----------------
NET ASSET VALUE, END OF PERIOD........... $ 11.469 $ 11.12 $ 11.424 $ 11.08
============== ================ ============== ================
TOTAL RETURN (1)......................... 4.05% 11.38%** 3.29% 10.84%**
============== ================ ============== ================
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........ $ 76,731 $ 80,508 $ 596,339 $ 623,229
Ratio of Expenses to Average Net
Assets................................. 1.65% 1.70% 2.40% 2.45%
Ratio of Net Investment Income/Loss to
Average Net Assets..................... 0.44% 0.88% (0.31)% 0.12%
Portfolio Turnover Rate.................. 40% 4%** 40% 4%**
<CAPTION>
CLASS C
-----------------------------------
YEAR ENDED OCTOBER 29, 1997*
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1999# TO JUNE 30, 1998
<S> <C> <C>
- -----------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD..... $ 11.075 $ 10.00
-------------- ----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss............. (0.034) 0.01
Net Realized and Unrealized Gain/Loss.. 0.406 1.06
-------------- ----------------
Total From Investment Operations....... 0.372 1.07
-------------- ----------------
DISTRIBUTIONS
Net Investment Income.................. (0.008) --
In Excess of Net Investment Income..... (0.002) --
Net Realized Gain...................... (0.014) --
-------------- ----------------
Total Distributions.................... (0.024) --
-------------- ----------------
NET ASSET VALUE, END OF PERIOD........... $ 11.423 $ 11.07
============== ================
TOTAL RETURN (1)......................... 3.39% 10.74%**
============== ================
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........ $ 63,140 $ 69,572
Ratio of Expenses to Average Net
Assets................................. 2.40% 2.45%
Ratio of Net Investment Income/Loss to
Average Net Assets..................... (0.32)% 0.13%
Portfolio Turnover Rate.................. 40% 4%**
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
** Non-Annualized
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-65
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Global Equity Fund (the "Fund") is organized as a separate
diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation, which
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective seeks long-term
capital appreciation by investing primarily in equity securities of issuers
throughout the world, including U.S. issuers. The Fund commenced operations on
October 29, 1997.
The Fund currently offers three classes of shares, Class A, Class B, and
Class C shares. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge of 1.00% imposed in the event
of certain redemptions within one year of the purchase. Class B and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
-------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First........................................ 5.00% 1.00%
Second....................................... 4.00% None
Third........................................ 3.00% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Thereafter................................... None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the current bid and asked prices obtained from reputable
brokers. Debt securities purchased with remaining maturities of 60 days or less
are valued at amortized cost, if it approximates market value. All other
securities and assets for which market values are not readily available are
valued at fair value as determined in good faith by the Board of Directors,
although the actual calculations may be done by others.
2. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date net
of applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on an accrual basis except where
collection is in doubt. Income, expenses (other than class specific expenses),
and realized and unrealized gains or losses are allocated to each class of
shares based upon their relative net assets. Distributions from the Fund are
recorded on the ex-distribution date.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices. Purchases and sales of portfolio securities are translated at the
rate of exchange prevailing when such securities were purchased or sold. Income
and expenses are translated at rates prevailing when accrued. Realized and
unrealized gains and losses on securities are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and losses on foreign currency includes the net
realized amount from the sale of the currency and the amount realized between
trade date and settlement date on security and income and expenses transactions.
However, the foreign currency portion of gains and losses realized on sales and
maturities of foreign denominated debt securities is treated as ordinary income
for U.S. Federal income tax purposes.
F-66
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
The net assets of the Fund may include issuers located in emerging markets.
There are certain risks inherent in these investments not typically associated
with investments in the United States, including the smaller size of the markets
themselves, lesser liquidity, greater volatility, and potentially less publicly
available information. Emerging markets may be subject to a greater degree of
government involvement in the economy and greater economic and political
uncertainty, which has the potential to extend to government imposed
restrictions on exchange traded transactions and currency transactions. These
restrictions may impact the Fund's ability to buy or sell certain securities or
to repatriate certain currencies to U.S. dollars. Additionally, changes in
currency exchange rates will affect the value of and investment income from such
securities.
5. ORGANIZATIONAL COSTS: The organizational costs of the Fund are being
amortized on a straight line basis over a period of five years beginning with
the Fund's commencement of operations. The Adviser has agreed that in the event
any of the initial shares of the Fund originally purchased by Van Kampen are
redeemed by the Fund during the amortization period, the Fund will be reimbursed
for any unamortized organizational costs in the same proportion as the number of
shares redeemed bears to the number of initial shares held at the time of
redemption.
6. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
A portfolio may be subject to taxes imposed by countries in which it invests.
Such taxes are generally based on income earned or gains realized or
repatriated. Taxes are accrued and applied to net investment income, net
realized capital gains, and net unrealized appreciation, as applicable, as the
income is earned or capital gains are recorded.
Net capital and net currency losses incurred after October 31 and within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. For the period from November 1, 1998 to June 30, 1999 the Fund
incurred and elected to defer until July 1, 1999 for U.S. Federal income tax
purposes, net currency losses of approximately $147,000.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- -------- -------- --------- -------------
<S> <C> <C> <C>
$674,545 $104,455 $(43,056) $61,399
</TABLE>
7. DISTRIBUTION OF INCOME AND GAINS: The amount and the character of income and
capital gain distributions to be paid by the Fund are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing book and
tax treatment for foreign currency transactions, net operating losses, foreign
taxes on net realized gains, and gains on certain securities of corporations
designated as "passive foreign investment companies."
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among undistributed net investment income/loss,
accumulated net realized gain/loss, and paid in capital in excess of par. For
the year ended June 30, 1999, approximately $2,284,000 has been reclassified
from paid in capital in excess of par with $1,838,000 posted to undistributed
net investment income and $446,000 posted to accumulated net realized gain.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of presenting net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., provide the Fund with investment advisory services at a fee
paid monthly and calculated at the annual rates based on average daily net
assets as indicated below. The Adviser has agreed to reduce advisory fees
payable to it and to reimburse the Fund, if necessary, if the annual operating
expenses, as defined, expressed as a percentage of average daily net assets,
exceed the maximum ratios indicated as follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- ------------ -------------- --------------
<S> <C> <C>
1.00 % 1.80% 2.55%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$35,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides the
Fund with administrative services pursuant to an administrative agreement for a
monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the Fund, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the
F-67
<PAGE>
VAN KAMPEN GLOBAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
Adviser from the fee it receives from the Fund. Transfer Agency services are
provided to the Fund by Van Kampen Investor Services Inc., an affiliate of the
Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $431,221 for Class A shares and deferred sales charges of $40,909,
$2,591,742, and $53,302 for Class A shares, Class B shares, and Class C shares,
respectively.
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Trust Company ("MSTC"), a former affiliate of the
Subadvisers. Through September 30, 1998, the Fund incurred MSTC fees of
approximately $49,000. On October 1, 1998, the Chase Manhattan Bank purchased
MSTC.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
During the year ended June 30, 1999, the Fund incurred approximately $106,000 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/ dealer.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $287,379,000 and sales of approximately $318,704,000
of investment securities other than long-term U.S. government securities and
short-term investments. There were no purchases or sales of long-term U.S.
government securities.
F-68
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Global Equity Allocation Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Global Equity Allocation
Fund (the "Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the
results of its operations, the changes in its net assets, and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-69
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------------------
COMMON STOCKS (86.8%)
AUSTRALIA (2.4%)
Amcor Ltd............................. 43,942 $ 243
AMP Ltd............................... 63,305 690
Australian Gas Light Co., Ltd......... 25,593 155
Boral Ltd............................. 76,468 129
Brambles Industries Ltd............... 14,761 387
Broken Hill Proprietary Co., Ltd...... 135,000 1,558
Coca-Cola Amatil Ltd.................. 64,066 257
Coles Myer Ltd........................ 73,971 429
Colonial Ltd.......................... 60,692 214
CSL Ltd............................... 7,167 62
CSR Ltd............................... 69,030 197
Faulding (F.H.) & Co. Ltd............. 8,373 51
Fosters Brewing Ltd................... 119,412 335
General Property Trust................ 92,060 149
GIO Australia Holdings Ltd............ 45,469 110
Goodman Fielder Ltd................... 90,483 80
Leighton Holdings Ltd................. 18,450 72
Lend Lease Corp., Ltd................. 36,172 495
Mayne Nickless Ltd.................... 24,819 85
National Australia Bank Ltd........... 89,258 1,471
News Corp., Ltd....................... 126,779 1,078
Normandy Mining Ltd................... 133,037 88
North Broken Hill Peko Ltd............ 64,684 131
Orica Ltd............................. 19,541 106
Pacific Dunlop Ltd.................... 72,472 104
Pioneer International Ltd............. 62,368 158
QBE Insurance Group Ltd............... 27,089 103
Rio Tinto Ltd......................... 12,573 205
Santos Ltd............................ 40,735 133
Schroders Property Fund............... 26,497 41
Smith (Howard) Ltd.................... 13,530 103
Southcorp Holdings Ltd................ 42,987 173
(a)Stockland Trust Group.............. 441 1
Stockland Trust Group................. 21,230 48
Suncorp-Metway Ltd.................... 21,378 127
TABCORP Holdings Ltd.................. 22,004 148
Telstra Corp., Ltd.................... 326,031 1,861
Wesfarmers Ltd........................ 12,783 115
Westfield Trust....................... 86,614 175
(a)Westfield Trust (New).............. 1,438 3
Westpac Banking Corp., Ltd............ 122,607 792
WMC Ltd............................... 121,589 520
Woolworths Ltd........................ 76,969 255
--------
13,637
--------
AUSTRIA (0.7%)
Austria Mikro Systems International
AG.................................. 503 18
Austria Tabakwerke AG................. 3,719 217
Austrian Airlines Osterreichische
Luftverkehrs AG..................... 4,142 100
Bank Austria AG....................... 19,144 1,008
Bau Holdings AG....................... 795 25
Boehler-Udderholm AG.................. 1,866 93
BWT AG................................ 285 54
Flughafen Wein AG..................... 3,589 151
Generali AG........................... 1,197 220
Lenzing AG............................ 625 36
Mayr-Melnhof Karton AG................ 2,026 92
Oesterreichische Brau-Beteiligungs
AG.................................. 1,548 69
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Oesterreichish Elektrizitaets 'A'..... 5,159 $ 752
OMV AG................................ 4,517 403
Radex-Heraklith Industriebet AG....... 2,366 64
VA Technologies AG.................... 2,535 230
Wienerberger Baustoffindustrie AG..... 11,680 303
--------
3,835
--------
CANADA (1.2%)
Abitibi-Consolidated, Inc............. 4,200 48
Agrium, Inc........................... 3,100 27
Alberta Energy Co., Ltd............... 2,400 77
Alcan Aluminum Ltd.................... 4,900 155
(a)Anderson Exploration Ltd........... 2,800 37
Bank of Montreal...................... 5,600 203
Bank of Nova Scotia................... 10,100 219
Barrick Gold Corp..................... 8,200 159
Barrick Gold Corp..................... 9,400 181
BCE, Inc.............................. 13,500 657
(a)BCT.Telus Communications, Inc...... 1,865 45
BCT.Telus Communications, Inc. 'A'.... 621 15
Bombardier, Inc. 'A'.................. 13,800 211
Cameco Corp........................... 1,200 25
(a)Canadian Hunter Exploration Ltd.... 1,350 20
Canadian Imperial Bank of Commerce.... 8,400 200
(a)Canadian Natural Resources Ltd..... 2,100 41
Canadian Occidental Petroleum Ltd..... 3,000 48
Canadian Pacific Ltd.................. 7,300 173
Canadian Tire Corp. 'A'............... 2,000 58
Cominco Ltd........................... 1,900 32
Dofasco, Inc.......................... 2,200 36
Edperbarascan Corp. 'A'............... 3,600 55
(a)Fairfax Financial Holdings Ltd..... 200 54
George Weston Ltd..................... 2,900 128
(a)Gulf Canada Resources Ltd.......... 19,900 82
Imasco Ltd............................ 9,000 242
Imperial Oil Ltd...................... 10,000 190
Inco Ltd.............................. 3,600 64
Laidlaw, Inc. 'B'..................... 7,100 52
(a)Loewen Group, Inc.................. 1,600 1
Macmillan Bloedel Ltd................. 3,000 54
Magna International, Inc. 'A'......... 1,600 90
MDS Inc. 'B'.......................... 1,300 28
National Bank of Canada............... 3,800 50
(a)Newbridge Networks Corp............ 3,600 103
Nexfor, Inc........................... 2,354 15
Noranda, Inc.......................... 5,400 71
Northern Telecom Ltd.................. 13,600 1,162
NOVA Chemicals Corp................... 208 5
Petro-Canada.......................... 6,200 85
Placer Dome, Inc...................... 22,560 262
(a)Poco Petroleums Ltd................ 3,200 26
Potash Corp. of Saskatchewan, Inc..... 1,200 62
Power Corp. of Canada................. 3,600 69
Quebecor, Inc. 'B'.................... 1,700 41
(a)Renaissance Energy Ltd............. 3,200 43
(a)Rogers Communication, Inc. 'B'..... 3,700 59
Royal Bank of Canada.................. 6,500 287
Seagram Co., Ltd...................... 7,400 368
Suncor Energy, Inc.................... 2,400 98
(a)Talisman Energy, Inc............... 2,300 62
Thomson Corp.......................... 12,600 380
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-70
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
CANADA (CONT.)
TransAlta Corp........................ 1,800 $ 27
Transcanada Pipelines Ltd............. 10,344 146
Westcoast Energy, Inc................. 2,600 51
--------
7,179
--------
FRANCE (1.8%)
Accor S.A............................. 396 100
Alcatel............................... 5,046 711
Axa................................... 3,452 422
Banque Nationale de Paris............. 2,154 180
BIC Corp.............................. 643 34
Bouygues.............................. 292 77
Canal Plus............................ 322 90
Cap Gemini S.A........................ 1,817 286
Carrefour S.A......................... 2,406 354
Cie de Saint-Gobain................... 1,041 166
Dassault Systemes S.A................. 3,172 105
Elf Aquitaine......................... 2,911 428
Eridania Beghin-Say S.A............... 451 65
Essilor International................. 141 44
Etablissements Economiques du Casino
Guichard-Perrachon.................. 800 70
France Telecom S.A.................... 6,286 475
Groupe Danone RFD..................... 658 170
Klepierre............................. 6,678 627
L'air Liquide......................... 959 151
L'Oreal............................... 688 466
Lafarge S.A........................... 1,141 109
Lagardere S.C.A....................... 1,495 56
Legrand S.A........................... 299 61
(a)LVMH Moet Hennessy Louis Vuitton... 921 270
Michelin (C.G.D.E.) 'B'............... 2,247 92
Paribas............................... 1,846 207
Pernod-Ricard......................... 742 50
Pinault-Printemps-Redoute............. 1,235 212
Promodes.............................. 198 130
PSA Peugeot Citroen S.A............... 549 87
Rhone-Poulenc S.A. 'A'................ 3,917 179
Sagem................................. 30 20
Sanofi-Synthelabo S.A................. 4,528 192
Schneider S.A......................... 1,810 102
Silic................................. 1,723 271
Simco S.A. (Registered)............... 8,930 756
Societe Fonciere Lyonnaise............ 1,725 246
Societe Generale...................... 1,008 178
Sodexho S.A........................... 650 112
Suez Lyonnaise des Eaux............... 1,493 270
Thomson CSF S.A....................... 1,735 60
(a)Total S.A. 'B'..................... 2,710 350
Unibail............................... 6,450 826
Usinor Sacilor........................ 3,012 45
(a)Valeo S.A.......................... 935 77
Vivendi............................... 4,941 401
--------
10,380
--------
GERMANY (3.4%)
Adidas-Salomon AG..................... 1,483 145
Agiv AG............................... 1,450 33
Allianz AG............................ 7,292 2,040
AMB Aachener & Muenchener
Beteiligungs AG..................... 600 $ 60
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
BASF AG............................... 18,500 814
Bayer AG.............................. 21,300 887
Bayer Vereinsbank AG.................. 12,025 766
Bilfinger & Berger Bau AG............. 1,950 48
Brau und Brunnen AG................... 33 2
CKAG Colonia Konzern AG............... 717 68
Continental AG........................ 3,533 85
Daimler-Chrysler AG................... 1 -
Daimler-Chrysler AG................... 29,729 2,600
(a)Degussa AG......................... 2,183 91
Deutsche Bank AG...................... 15,100 921
(a)Deutsche Telekom AG................ 39,688 1,670
Dresdner Bank AG...................... 14,617 569
FAG Kugelfischer Georg Schaefer AG.... 4,500 44
Heidelberger Zement AG................ 603 49
Hochtief AG........................... 3,183 145
Karstadt AG........................... 350 167
Kloeckner-Humboldt-Deutz AG........... 2,067 14
Linde AG.............................. 233 140
Lufthansa AG.......................... 10,700 195
MAN AG................................ 3,500 119
Mannesmann AG......................... 6,620 991
Merck KGaA AG......................... 6,440 209
Metro AG.............................. 7,057 450
(a)Metro AG........................... 600 3
Muenchener Rueckversicherungs-
Gesellschaft AG (Registered)........ 2,447 462
Muenchener Rueckversicherungs-
Gesellschaft AG (Registered)........ 2,447 457
Preussag AG........................... 5,000 270
RWE AG................................ 12,704 589
SAP AG................................ 1,727 593
Schering AG........................... 2,300 246
Siemens AG............................ 16,783 1,296
(a)Thyssen AG......................... 12,170 267
VEBA AG............................... 14,733 870
Viag AG............................... 845 393
Volkswagen AG......................... 8,730 564
--------
19,332
--------
GREECE (0.0%)
Alpha Credit Bank S.A................. 1,387 90
--------
HONG KONG (1.0%)
Bank of East Asia..................... 41,800 106
Cathay Pacific Airways Ltd............ 93,000 143
Cheung Kong Holdings Ltd.............. 72,000 640
CLP Holdings Ltd...................... 79,500 386
Dickson Concepts International Ltd.... 25,000 18
Hang Lung Development Corp............ 48,000 59
Hang Seng Bank Ltd.................... 59,200 662
(a)Hong Kong & China Gas Co., Ltd..... 150,000 217
Hong Kong Land Holdings Ltd........... 508 1
Hong Kong Shanghai Hotels............. 22,000 19
Hong Kong Telecommunications Ltd...... 358,800 932
Hopewell Holdings Ltd................. 51,000 39
Hutchison Whampoa Ltd................. 108,000 978
Hysan Development Co.................. 33,781 51
Johnson Electric Holdings Ltd......... 26,000 107
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-71
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
HONG KONG (CONT.)
New World Development Co., Ltd........ 67,000 $ 201
Shangri-La Asia Ltd................... 32,000 39
Sino Land Co.......................... 74,001 42
South China Morning Post.............. 62,000 35
Sun Hung Kai Properties Ltd........... 67,000 611
Swire Pacific Ltd. 'A'................ 48,500 240
Television Broadcasting Ltd........... 11,000 52
Wharf Holdings Ltd.................... 68,000 212
--------
5,790
--------
ITALY (2.5%)
Alitalia.............................. 62,254 162
Assicurazioni Generali S.p.A.......... 44,676 1,550
Banca Commerciale Italiana............ 81,300 594
Banco Ambrosiano Veneto............... 85,900 413
Banco Popolare di Milano.............. 11,000 85
Benetton Group S.p.A.................. 76,300 150
Burgo Cartiere S.p.A.................. 3,700 24
CIR-Compagnie Industriali Riunite
S.p.A............................... 700 1
Credito Italiano S.p.A................ 196,215 863
Edison S.p.A.......................... 31,000 269
Ente Nazionale Idrocarburi S.p.A...... 360,000 2,152
Falck Acciaierie & Ferriere
Lombarde............................ 2,000 15
Fiat S.p.A............................ 261,630 829
Fiat S.p.A. di Risp NCS............... 44,970 77
Impreglio S.p.A....................... 21,000 18
Istituto Nazionale delle Assicurazioni
(INA)............................... 176,680 410
Italcementi S.p.A..................... 7,300 93
Italcementi S.p.A..................... 10,150 51
Italgas............................... 20,400 86
La Rinascente S.p.A................... 9,878 75
Magneti Marelli S.p.A................. 14,000 19
Mediaset S.p.A........................ 49,000 436
Mediobanca S.p.A...................... 29,260 307
Montedison S.p.A...................... 92,616 151
Montedison S.p.A. di Risp NCS......... 30,628 36
(a)Olivetti Group..................... 76,180 183
Parmalat Finanziaria S.p.A............ 79,640 104
Pirelli S.p.A......................... 100,000 273
R.A.S................................. 21,769 212
R.A.S. di Risp........................ 462 4
S.A.I................................. 250 1
S.A.I................................. 6,100 63
San Paolo-Imi S.p.A................... 62,176 847
Sirti S.p.A........................... 8,000 39
Snia BPD S.p.A........................ 41,000 51
Telecom Italia Mobile S.p.A........... 178,400 1,067
Telecom Italia Mobile S.p.A. RNC...... 43,400 160
Telecom Italia S.p.A.................. 30,162 164
Telecom Italia S.p.A.................. 96,388 1,003
Unione Immobiliare S.p.A.............. 2,666,907 1,184
--------
14,221
--------
JAPAN (10.9%)
Acom Co., Ltd......................... 4,500 389
Ajinomoto Co., Inc.................... 45,800 523
(a)Aoki Corp.......................... 47,800 30
Asahi Bank Ltd........................ 64,500 310
Asahi Breweries Ltd................... 29,000 361
Asahi Chemical Industry Co., Ltd...... 85,400 474
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Asahi Glass Co........................ 80,600 $ 523
Bank of Tokyo-Mitsubishi Ltd.......... 180,600 2,574
Bank of Yokohama...................... 23,500 60
Bridgestone Corp...................... 32,000 969
Canon, Inc............................ 34,800 1,002
Casio Computer Co., Ltd............... 17,000 129
Chiba Bank Ltd........................ 22,800 84
Chugai Pharmaceutical Ltd............. 29,800 321
Credit Saison Co., Ltd................ 5,100 107
Dai Nippon Printing Co., Ltd.......... 32,800 525
Daiei, Inc............................ 29,800 102
Daikin Industries Ltd................. 28,800 335
Daiwa House Industry.................. 29,800 314
Daiwa Securities Co., Ltd............. 108,000 715
Denso Corp............................ 10,600 216
East Japan Railway Co................. 170 914
Ebara Corp............................ 19,800 236
Fanuc Co.............................. 12,200 656
Fuji Bank............................. 171,000 1,194
Fuji Photo Film Co.................... 17,000 644
Fujitsu Ltd........................... 70,600 1,422
Furukawa Electric Co., Ltd............ 20,800 96
Gunma Bank Ltd........................ 11,000 69
Hankyu Corp........................... 37,000 147
(a)Hazama Corp........................ 28,000 23
Hitachi Ltd........................... 143,000 1,343
Honda Motor Co........................ 34,000 1,443
Industrial Bank of Japan Ltd.......... 79,000 627
Ito-Yokado Co., Ltd................... 14,000 938
Japan Airlines Co., Ltd............... 90,000 298
Japan Energy Corp..................... 67,600 79
Joyo Bank............................. 11,800 46
Jusco Co.............................. 14,800 269
Kajima Corp........................... 55,600 202
Kansai Electric Power Co.............. 36,600 696
KAO Corp.............................. 37,800 1,063
Kawasaki Steel Corp................... 45,600 85
Kinki Nippon Railway Co., Ltd......... 65,600 323
Kirin Brewery Co., Ltd................ 57,600 691
Komatsu Ltd........................... 52,600 336
Kubota Corp........................... 81,400 244
Kumagai Gumi Co., Ltd................. 88,600 99
Kyocera Corp.......................... 8,500 499
Kyowa Hakko Kogyo Co., Ltd............ 26,800 154
Marubeni Corp......................... 77,200 162
Marui Co., Ltd........................ 6,800 113
Matsushita Electric Industrial Co.,
Ltd................................. 72,400 1,408
Mitsubishi Chemical Corp.............. 86,000 298
Mitsubishi Corp....................... 76,000 516
Mitsubishi Electric Corp.............. 101,400 390
Mitsubishi Estate Co., Ltd............ 24,000 234
Mitsubishi Heavy Industries Ltd....... 155,000 630
Mitsubishi Materials Corp............. 54,600 122
Mitsubishi Trust and Banking Corp..... 38,000 370
Mitsui & Co........................... 78,200 546
Mitsui Engineering & Shipbuilding Co.,
Ltd................................. 56,600 64
Mitsui Fudosan Co., Ltd............... 18,000 146
Mitsui Trust & Banking Co., Ltd....... 1,400 2
Mitsukoshi Ltd........................ 29,800 130
Murata Manufacturing Co., Inc......... 12,000 790
Mycal Corp............................ 18,800 118
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-72
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
JAPAN (CONT.)
NEC Corp.............................. 50,600 $ 630
New OJI Paper Co., Ltd................ 57,600 334
NGK Insulators Ltd.................... 29,800 312
Nippon Express Co., Ltd............... 22,000 132
Nippon Fire & Marine Insurance Co..... 26,800 91
Nippon Light Metal Co................. 26,800 40
Nippon Meat Packers, Inc.............. 26,800 350
Nippon Oil Co......................... 82,600 349
Nippon Steel Corp..................... 320,000 744
Nippon Telegraph & Telephone Corp.
ADR................................. 433 5,051
Nippon Yusen Kabushiki Kaisha......... 80,400 310
Nissan Fire & Marine Insurance Co.,
Ltd................................. 350 1
Nissan Motor Co., Ltd................. 102,400 490
NKK Corp.............................. 168,000 138
Nomura Securities Co., Ltd............ 55,000 645
Odakyu Electric Railway Co............ 31,800 107
Orix Corp............................. 1,300 116
Osaka Gas Co.......................... 114,200 388
Penta-Ocean Construction Co., Ltd..... 26,800 47
Pioneer Electronic Corp............... 8,000 156
Rohm Co............................... 3,000 470
Sakura Bank Ltd....................... 108,200 411
Sankyo Co., Ltd....................... 21,800 550
Sanwa Bank Ltd........................ 80,000 788
Sanyo Electric Co., Ltd............... 73,400 299
Secom Co.............................. 6,800 709
Sega Enterprises Ltd.................. 5,800 77
Sekisui House Ltd..................... 28,800 311
Sharp Corp............................ 48,600 575
Shimano Inc........................... 8,000 190
Shimizu Corp.......................... 40,800 159
Shin-Etsu Chemical Co................. 12,000 402
Shiseido Co., Ltd..................... 13,000 195
Shizuoka Bank......................... 15,800 158
Showa Denko K.K....................... 54,600 70
SMC Corp.............................. 2,100 235
Softbank Corp......................... 900 183
Sony Corp............................. 12,000 1,296
Sumitomo Bank Ltd..................... 69,000 857
Sumitomo Chemical Co.................. 108,200 497
Sumitomo Corp......................... 55,400 406
Sumitomo Electric Industries.......... 38,800 442
Sumitomo Forestry Co., Ltd............ 17,000 132
Sumitomo Metal Industries Ltd......... 103,400 129
Sumitomo Metal Mining Co.............. 28,000 116
Sumitomo Osaka Cement Co., Ltd........ 27,800 54
Taisei Corp., Ltd..................... 57,600 127
Taisho Pharmaceutical Co.............. 17,000 563
Taiyo Yuden Co., Ltd.................. 33,000 542
Takeda Chemical Industries............ 32,800 1,522
Teijin Ltd............................ 57,600 234
The 77 Bank Ltd....................... 12,000 105
Tobu Railway Co....................... 36,800 104
Tohoku Electric Power Co., Ltd........ 19,500 296
Tokai Bank Ltd........................ 53,600 306
Tokio Marine & Fire Insurance Co...... 79,400 864
Tokyo Electric Power Co............... 47,300 1,000
Tokyo Electron Ltd.................... 4,000 272
Tokyo Gas Co.......................... 108,200 $ 267
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Tokyu Corp............................ 45,800 116
Toppan Printing Co., Ltd.............. 37,800 422
Toray Industries, Inc................. 84,500 424
Toto Ltd.............................. 29,800 231
Toyobo Ltd............................ 58,600 89
Toyota Motor Corp..................... 118,000 3,739
Ube Industries Ltd.................... 54,600 118
Yokogawa Electric Corp................ 30,000 177
--------
62,598
--------
NETHERLANDS (3.5%)
ABN Amro Holdings N.V................. 58,059 1,259
Aegon N.V............................. 22,400 1,627
Akzo Nobel N.V........................ 13,319 561
Buhrmann N.V.......................... 122 2
Elsevier N.V.......................... 24,030 279
Getronics N.V......................... 2,861 110
Hagemeyer N.V......................... 4,384 143
Heineken N.V.......................... 12,409 636
ING Groep N.V......................... 37,247 2,019
KLM Royal Dutch Airlines N.V.......... 3,379 96
Koninklijke Ahold N.V................. 23,809 821
KPN N.V............................... 11,250 529
Oce N.V............................... 3,679 94
Philips Electronics N.V............... 13,222 1,306
Royal Dutch Petroleum................. 85,956 5,041
Royal Dutch Petroleum Co., New York
Shares.............................. 28,700 1,729
Schlumberger Ltd...................... 7,900 503
Stork N.V............................. 120 3
TNT Post Group N.V.................... 19,569 468
(a)Unilever N.V. CVA.................. 23,294 1,572
(a)Unilever N.V....................... 7,500 523
Vedior N.V............................ 2,920 50
Wolters Kluwer N.V.................... 11,684 466
--------
19,837
--------
SINGAPORE (1.5%)
City Developments Ltd................. 99,000 634
Comfort Group Ltd..................... 65,000 40
Creative Technology Ltd............... 11,150 145
Cycle & Carriage Ltd.................. 19,000 109
DBS Land Ltd.......................... 131,000 262
Development Bank of Singapore Ltd.
(Foreign)........................... 76,000 929
First Capital Corp.................... 36,000 56
Fraser & Neave Ltd.................... 36,000 160
Hotel Properties Ltd.................. 49,000 51
Inchcape Bhd.......................... 5,000 8
Keppel Corp........................... 105,000 358
NatSteel Ltd.......................... 45,000 79
Neptune Orient Lines Ltd.............. 28,000 34
Oversea-Chinese Banking Corp., Ltd.
(Foreign)........................... 119,000 993
Overseas Union Enterprise Ltd......... 20,000 63
Parkway Holdings Ltd.................. 45,000 111
Sembcorp Industries Ltd............... 148,235 235
Singapore Airlines Ltd. (Foreign)..... 112,000 1,066
Singapore Press Holdings.............. 45,000 767
Singapore Technology Engineering
Ltd................................. 355,000 403
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-73
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
SINGAPORE (CONT.)
Singapore Telecommunications Ltd...... 702,000 $ 1,204
Straits Trading Co., Ltd.............. 13,000 17
United Industrial Corp., Ltd.......... 167,000 113
United Overseas Bank Ltd. (Foreign)... 87,000 608
United Overseas Land Ltd.............. 74,000 83
Venture Manufacturing Ltd............. 25,000 192
--------
8,720
--------
SPAIN (2.1%)
Acerinox S.A.......................... 3,764 110
ACS S.A............................... 2,802 80
Argentaria S.A........................ 26,319 600
Autopistas Concesionaria Espanola
S.A................................. 13,943 163
Azucarere Ebro Agricolas S.A.......... 3,766 58
Banco Bilbao Vizcaya S.A.
(Registered)........................ 104,767 1,516
Banco Santander Central Hispano
S.A................................. 179,712 1,874
Corporacion Financiera Alba S.A....... 753 122
Corporacion Mapfre S.A................ 3,696 75
Empresa Nacional de Cellulosas S.A.... 34 1
Endesa S.A............................ 49,484 1,057
Energia y Industrias Aragonesas
S.A................................. 12 -
Fomento de Construcciones y Contratas
S.A................................. 3,764 216
Gas Natural SDG S.A. 'E'.............. 7,527 548
General de Aguas de Barcelona S.A..... 2,379 124
Gropo Dragados, S.A................... 8,955 105
Iberdrola S.A......................... 45,207 689
Immobiliaria Metropolitana Vasco
Central
S.A................................. 27,499 539
Prima Inmobiliaria S.A................ 30,600 237
Repsol S.A............................ 48,858 999
Sol Melia S.A......................... 1,647 70
Tabacalera S.A. 'A'................... 8,964 181
(a)Telefonica S.A..................... 33,095 1,596
(a)TelePizza S.A...................... 10,943 57
Union Electrica Fenosa S.A............ 14,986 196
Vallehermoso S.A...................... 90,415 877
(a)Viscofan Industria Navarra de
Envolturas Calulosicas S.A.......... 68 1
Zardoya-Otis S.A...................... 1,264 32
--------
12,123
--------
SWEDEN (1.7%)
ABB AB 'A'............................ 9,900 132
ABB AB 'B'............................ 700 9
(a)ABB Ltd............................ 3,005 282
AGA AG 'B'............................ 8,400 104
Atlas Copco AB 'A'.................... 6,650 182
Atlas Copco AB 'B'.................... 3,600 97
Castellum AB.......................... 31,600 299
Diligentia AB......................... 51,786 404
Drott AB 'B'.......................... 32,300 263
Electrolux AB 'B'..................... 15,900 334
Ericsson AB........................... 68,700 2,211
Fastighets AB Tornet.................. 17,610 240
ForeningsSparbanken AB................ 27,450 389
Hennes & Mauritz AB 'B'............... 42,400 1,051
(a)NetCom Systems AB 'B'.............. 3,400 115
OM Gruppen AB......................... 3,800 43
Sandvik AB 'A'........................ 10,200 223
Sandvik AB 'B'........................ 4,200 93
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
SCA AB 'B'............................ 11,500 $ 299
Securitas AB 'B'...................... 20,200 303
Skandia Forsakrings AB................ 26,700 501
Skandinaviska Enskilda Banken AB
'A'................................. 31,100 364
Skanska AB 'B'........................ 6,500 246
SKF AB 'B'............................ 4,500 83
Svenska Handelsbanken 'A'............. 33,600 405
Svenskt Stal AB 'A'................... 6,300 79
Trelleborg AB 'B'..................... 7,600 67
Volvo AB 'A'.......................... 7,600 220
Volvo AB 'B'.......................... 15,900 463
Wm-Data AB 'B'........................ 2,700 103
--------
9,604
--------
SWITZERLAND (2.2%)
ABB Ltd. (New)........................ 3,969 375
Adecco S.A. (Registered).............. 470 252
Alusuisse-Lonza Holding AG
(Registered)........................ 160 187
CS Holding AG (Registered)............ 6,850 1,188
Georg Fischer AG (Registered)......... 85 28
Holderbank Financiere Glarus AG
(Bearer)............................ 175 207
Nestle S.A. (Registered).............. 1,005 1,814
Novartis AG (Registered).............. 1,636 2,393
Roche Holding AG (Bearer)............. 42 693
Roche Holding AG-Genusshein........... 177 1,823
Sairgroup (Registered)................ 405 85
Schweizerische Rueckver
(Registered)........................ 375 715
SGS Societe Generale de Surveillance
Holding S.A. (Bearer)............... 50 52
SMH AG (Bearer)....................... 135 91
Sulzer AG (Registered)................ 110 67
Swisscom AG (Registered).............. 1,090 411
UBS AG (Registered)................... 5,181 1,549
Valora Holding AG (Registered)........ 165 38
Zurich Allied AG (New)................ 1,205 686
--------
12,654
--------
UNITED KINGDOM (10.5%)
Abbey National plc.................... 40,603 763
Albert Fisher Group plc............... 58,227 12
Alldays plc........................... 3,096 4
Allders plc........................... 4,039 9
Allied Zurich plc..................... 43,182 543
Amec plc.............................. 11,811 48
Anglian Water plc..................... 31,582 350
Arjo Wiggins Appleton plc............. 28,433 99
Associated British Foods plc.......... 25,719 170
Associated British Ports Holdings
plc................................. 83,014 376
AstraZeneca Group..................... 13,873 537
AstraZeneca plc....................... 26,569 1,038
BAA plc............................... 31,685 305
Barclays plc.......................... 40,838 1,189
Barrat Developments plc............... 16,890 95
Bass plc.............................. 23,324 339
BBA Group plc......................... 2,022 16
Beazer Group plc...................... 38,215 121
Berisford plc......................... 26,471 101
BG plc................................ 112,642 689
BICC plc.............................. 31,967 46
Blue Circle Industries plc............ 52,594 350
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-74
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM (CONT.)
BOC Group plc......................... 16,708 $ 327
Boots Co. plc......................... 28,579 340
BP Amoco plc.......................... 234,126 4,199
BPB Industries plc.................... 77,860 462
British Aerospace plc................. 55,389 360
British Airways plc................... 31,222 216
British American Tobacco plc.......... 43,182 406
British Land Co. plc.................. 224,516 1,879
British Sky Broadcasting Group plc.... 46,468 431
British Steel plc..................... 78,328 203
British Telecommunications plc........ 103,228 1,731
Burmah Castrol plc.................... 34,128 648
Cable & Wireless plc.................. 37,650 480
Cadbury Schweppes plc................. 55,210 352
Capital Shopping Centers plc.......... 60,550 384
Caradon plc........................... 97,945 232
Carpetright plc....................... 16,769 104
Centrica plc.......................... 128,580 302
Cobham plc............................ 19,249 307
Commercial Union plc.................. 27,431 397
Compass Group plc..................... 20,035 199
Delta plc............................. 3,953 9
Diageo plc............................ 98,750 1,032
Dialog Corporation plc................ 7,331 11
Emap plc.............................. 9,770 171
EMI Group plc......................... 80,014 642
Enterprise Oil plc.................... 40,199 262
Firstgroup plc........................ 38,972 212
FKI plc............................... 31,227 97
General Electric plc.................. 79,686 813
GKN plc............................... 42,906 733
Glaxo Wellcome plc.................... 85,295 2,372
Granada Group plc..................... 25,911 481
Grantchester Holdings plc............. 273,830 741
Great Portland Estates plc............ 140,530 486
Great Universal Stores plc............ 29,417 326
Greycoat plc.......................... 8,968 36
Halifax plc........................... 66,139 790
Hammerson plc......................... 100,910 756
Hanson plc............................ 59,228 526
Hilton Group plc...................... 43,911 174
House of Fraser plc................... 22,703 31
HSBC Holdings plc..................... 66,014 2,339
Hyder plc............................. 39,193 467
IMI plc............................... 37,585 152
Imperial Chemical Industries plc...... 21,041 208
Invensys plc.......................... 215,159 1,019
Jarvis plc............................ 21,676 101
JBA Holdings plc...................... 2,387 4
Johnson Matthey plc................... 44,295 433
Kingfisher plc........................ 43,082 496
Laird Group plc....................... 10,539 44
Land Securities plc................... 201,165 2,707
Lasmo plc............................. 135,898 311
Legal & General Group plc............. 149,612 381
Lex Service plc....................... 21,762 201
LIMIT plc............................. 87,179 184
Lloyds TSB Group plc.................. 144,074 1,955
London Clubs International plc........ 31,795 $ 72
London Forfaiting Co., plc............ 11,737 11
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Lonmin plc............................ 35,802 333
Low & Bonar plc....................... 3,132 10
Manchester United plc................. 3,027 10
Marks & Spencer plc................... 79,288 459
Mayflower Corporation plc............. 396 1
McKechnie plc......................... 3,630 28
Meggitt plc........................... 9,288 29
MEPC plc.............................. 169,153 1,377
Mirror Group News Ord plc............. 32,562 127
Misys plc............................. 72,884 624
National Power plc.................... 36,850 269
Next plc.............................. 42,540 517
NFC plc............................... 64,004 208
Ocean Group plc....................... 1,489 25
(a)Parity plc......................... 14,245 140
Pearson plc........................... 1 -
Peninsular & Oriental Steam Navigation
Co.................................. 21,474 323
Pennon Group plc...................... 17,517 293
Pilkington plc........................ 213,754 311
Powerscreen International plc......... 3,303 10
Provident Financial plc............... 7 --
Prudential Corp. plc.................. 54,935 809
Racal Electronic plc.................. 15,431 94
Railtrack Group plc................... 13,746 281
Rank Group plc........................ 68,009 271
Reed International plc................ 33,290 222
Rentokil Initial plc.................. 78,591 307
Reuters Holdings plc.................. 40,134 528
Rexam plc............................. 22,695 92
Rio Tinto plc......................... 31,413 527
RMC Group plc......................... 12,110 195
Rolls-Royce plc....................... 56,619 240
Royal & Sun Alliance Insurance Group
plc................................. 38,002 341
Rugby Group plc....................... 20,156 36
Safeway plc........................... 30,418 122
Sainsbury (J) plc..................... 52,895 334
Schroders Property Fund............... 4,417 90
Scotia Holdings plc................... 8,881 16
Scottish & Southern Energy plc........ 34,834 357
Scottish Power plc.................... 36,236 313
Skillsgroup plc....................... 2,700 13
Slough Estates plc.................... 189,716 1,077
SmithKline Beecham plc................ 146,865 1,910
Smiths Industries plc................. 8,351 110
Stagecoach Holdings plc............... 68,744 246
Tarmac plc............................ 40,831 77
Tate & Lyle plc....................... 21,085 132
Taylor Woodrow plc.................... 19,736 57
Tesco plc............................. 89,024 229
Thames Water plc...................... 14,894 236
The Berkeley Group plc................ 10,202 123
TI Group plc.......................... 17,948 120
Torotrac plc.......................... 2,634 8
Unilever plc.......................... 95,100 847
United Utilities...................... 19,397 236
Vickers plc........................... 4,410 11
Vodafone Group plc.................... 49,284 972
Wickes plc............................ 1,852 11
William Baird plc..................... 25,635 46
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-75
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM (CONT.)
WPP Group plc......................... 45,398 $ 384
Yorkshire Water plc................... 29,111 203
--------
60,262
--------
UNITED STATES (41.4%)
A.G. Edwards, Inc..................... 2,500 81
A.H. Belo Corp., 'A'.................. 4,200 83
A.O. Smith Corp....................... 6,800 190
AAR Corp.............................. 6,600 150
Abbott Laboratories................... 20,600 937
(a)Abercrombie & Fitch Co. 'A'........ 3,000 144
ABM Industries, Inc................... 4,600 141
(a)Acnielsen Corp..................... 2,100 64
(a)Acxiom Corp........................ 14,500 362
Adac Laboratories, Inc................ 4,300 31
(a)ADC Telecom, Inc................... 3,900 178
(a)Advo Inc........................... 4,600 95
(a)AES Corp........................... 3,600 209
AETNA, Inc............................ 2,400 215
AFLAC, Inc............................ 7,400 354
AGL Resources, Inc.................... 2,100 39
Air Express International Corp........ 8,100 206
Air Products & Chemicals, Inc......... 5,500 221
Airborne Freight Corp................. 2,000 55
AK Steel Holding Corp................. 2,900 65
(a)Alaska Air Group, Inc.............. 1,100 46
Albertson's, Inc...................... 6,146 317
Alcoa, Inc............................ 6,900 427
Aliant Communications, Inc............ 1,500 69
Allegheny Energy, Inc................. 3,100 99
Alliant Energy Corp................... 3,800 108
(a)Alliant Techsystems, Inc........... 2,800 242
Allied Signal, Inc.................... 7,900 498
(a)Allied Waste Industries, Inc....... 5,400 107
Allstate Corp......................... 11,300 405
Alltel Corp........................... 3,800 272
Alpharma, Inc......................... 5,900 210
(a)Altera Corp........................ 5,600 206
(a)Alza Corp. 'A'..................... 3,000 153
AMBAC Finacial Group, Inc............. 2,000 114
Amerada Hess Corp..................... 2,400 143
Ameren Corp........................... 1,800 69
American Bankers Insurance
Group, Inc.......................... 9,100 495
American Electric Power Co., Inc...... 2,700 101
American Express Co................... 5,900 768
American Financial Group, Inc......... 2,200 75
American General Corp................. 4,100 309
American Home Products Corp........... 17,600 1,012
American International Group, Inc..... 19,230 2,251
(a)American Management
Systems, Inc........................ 8,500 273
(a)American Power Conversion Corp..... 5,600 113
(a)American Standard
Companies, Inc...................... 2,400 115
(a)American Telephone & Telegraph
Co.................................. 45,145 2,520
American Water Works, Inc............. 2,400 74
(a)Americredit Corp................... 13,500 216
Ameritech Corp........................ 15,100 1,110
(a)Amgen, Inc......................... 7,300 444
(a)AMR Corp........................... 2,400 164
(a)Analog Devices..................... 5,000 251
Analogic Corp......................... 3,000 $ 93
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Analysts International Corp........... 5,200 75
Anchor Bancorp Wisconsin, Inc......... 3,500 62
Anheuser-Busch Cos., Inc. 'A'......... 6,900 489
(a)Anixter International, Inc......... 10,800 197
(a)Ann Taylor Stores Corp............. 4,800 216
Aon Corp.............................. 4,500 186
Apogee Enterprises, Inc............... 9,400 126
(a)Apollo Group, Inc. 'A'............. 2,600 69
Applebee's International, Inc......... 6,400 193
Applied Industrial
Technologies, Inc................... 7,300 139
(a)Applied Material, Inc.............. 6,000 443
Applied Power, Inc. 'A'............... 8,300 227
Aptar Group, Inc...................... 8,500 255
Arch Chemicals, Inc................... 1,200 29
Archer Daniels Midland Co............. 9,500 147
(a)Arrow Electronics, Inc............. 3,600 68
Arvin Industries, Inc................. 1,500 57
(a)Aspect Telecommunications Corp..... 11,200 109
Associated Banc-Corp.................. 2,400 100
Associates First Capital Corp. 'A'.... 9,603 426
(a)Astec Industries, Inc.............. 4,200 171
Astoria Financial Corp................ 11,700 514
AT&T Corp. Liberty Media 'A'.......... 11,576 425
Atlantic Richfield Co................. 5,000 418
(a)Atmel Corp......................... 4,100 107
Atmos Energy Corp..................... 5,700 142
Automatic Data Processing, Inc........ 7,900 348
Avery Dennison Corp................... 3,000 181
(a)Avid Technology, Inc............... 5,500 89
Avnet, Inc............................ 1,400 65
Avon Products, Inc.................... 4,200 233
Baker Hughes, Inc..................... 5,600 188
Baldor Electric Co.................... 9,500 189
Ballard Medical Products.............. 7,300 170
Bank of New York Co., Inc............. 9,300 341
Bank One Corp......................... 15,900 947
BankAmerica Corp...................... 23,000 1,686
BankBoston Corp....................... 4,400 225
Banknorth Group, Inc.................. 3,200 106
(a)Barnes & Noble, Inc................ 2,100 57
Barnes Group, Inc..................... 5,000 109
(a)Barr Laboratories, Inc............. 4,700 187
(a)Barrett Resources Corp............. 5,800 223
Baxter International, Inc............. 4,300 261
BB&T Corp............................. 4,900 180
(a)BE Aerospace, Inc.................. 5,200 97
Beckman Coulter, Inc.................. 1,200 58
Becton & Dickinson & Co............... 4,500 135
(a)Bed Bath & Beyond, Inc............. 4,000 154
Belden, Inc........................... 8,900 213
Bell Atlantic Corp.................... 21,000 1,373
BellSouth Corp........................ 26,300 1,233
Bergen Brunswig Corp. 'A'............. 3,000 52
(a)Best Buy Co., Inc.................. 6,000 405
Bestfoods............................. 4,300 213
(a)Billing Concepts Corp.............. 7,300 82
Bindley Western Industries, Inc....... 6,667 154
(a)Biogen, Inc........................ 4,200 270
(a)BISYS Group, Inc................... 6,200 363
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-76
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONT.)
(a)BJ Services Co..................... 2,700 $ 79
(a)BJ's Wholesale Club, Inc........... 2,800 84
Black & Decker Corp................... 2,400 151
Blout International, Inc. 'A'......... 8,900 242
(a)BMC Software, Inc.................. 7,185 388
Boeing Co............................. 13,800 610
Borg-Warner Automotive, Inc........... 5,035 277
(a)Boston Scientific Corp............. 6,900 303
Bowater, Inc.......................... 2,000 95
Bowne & Co............................ 8,500 111
Brady Corp. 'A'....................... 4,900 159
(a,c)BREED Technologies, Inc.......... 13,300 30
(a)Brightpoint, Inc................... 11,800 72
(a)Brinker International, Inc......... 2,500 68
Bristol-Myers Squibb Co............... 27,000 1,902
Browning-Ferris Industries, Inc....... 3,100 133
Brush Wellman, Inc.................... 6,100 111
(a)Buckeye Technologies, Inc.......... 8,500 129
Burlington Northern Railroad Co....... 5,700 177
Burlington Resources, Inc............. 3,100 134
(a)Burr-Brown Corp.................... 8,000 293
(a)C-Cube Microsystems, Inc........... 8,400 266
(a)Cable Design Technologies Corp..... 6,900 107
Cabot Corp............................ 2,600 63
Cabot Oil & Gas Corp. 'A'............. 6,800 127
(a)Cadence Design Systems, Inc........ 6,500 83
Cambrex Corp.......................... 6,300 165
(a)Cambridge Tech Partner, Inc........ 1,900 33
Campbell Soup Co...................... 5,400 250
(a)Canandaigua Brands, Inc. 'A'....... 3,800 199
Capital One Financial Corp............ 3,300 184
Capital Re Corp....................... 7,700 124
Caraustar Industries, Inc............. 6,000 148
Cardinal Health, Inc.................. 4,258 273
Carlisle Cos., Inc.................... 1,100 53
Carolina Power & Light Co............. 1,900 81
Carpenter Technology Corp............. 1,200 34
Case Corp............................. 9,200 443
Caseys General Stores, Inc............ 12,000 180
(a)Catalina Marketing Corp............ 3,800 350
Caterpillar, Inc...................... 6,000 360
Cato Corp., 'A'....................... 7,000 81
CBRL Group, Inc....................... 2,500 43
(a)CBS, Inc........................... 10,900 473
CCB Financial Corp.................... 1,300 69
(a)CDI Corp........................... 4,900 167
(a)CEC Entertainment, Inc............. 3,600 152
(a)Cendant Corp....................... 13,100 269
(a)Centocor, Inc...................... 2,200 103
Central & South West Corp............. 2,600 61
Central Hudson Gas & Electric Corp.... 3,800 160
Central Parking Corp.................. 6,000 205
Centura Banks, Inc.................... 4,900 276
Century Telephone
Enterprises, Inc.................... 3,900 155
(a)Ceridian Corp...................... 2,600 85
(a)Cerner Corp........................ 6,400 134
(a)Champion Enterprises, Inc.......... 10,000 186
Charter One Financial, Inc............ 4,000 111
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Chase Manhattan Corp.................. 12,000 $ 1,039
Chemed Corp........................... 4,000 133
ChemFirst, Inc........................ 4,600 112
Chevron Corp.......................... 8,800 838
Chiquita Brands International, Inc.... 13,900 125
(a)Chiron Corp........................ 5,500 114
(a)Chris-Craft Industries, Inc........ 1,545 73
Chubb Corp............................ 2,400 167
(a)Ciber, Inc......................... 11,100 212
Cigna Corp............................ 3,100 276
CILCORP, Inc.......................... 3,100 194
Cincinnati Bell, Inc.................. 4,500 112
Cincinnati Financial Corp............. 2,900 109
Cinergy Corp.......................... 2,200 70
Cintas Corp........................... 3,100 208
(a)Cisco Systems, Inc................. 42,600 2,748
Citigroup, Inc........................ 46,200 2,194
(a)Citrix Systems, Inc................ 2,600 147
City National Corp.................... 1,500 56
Cke Restaurants, Inc.................. 10,200 166
CLARCOR, Inc.......................... 6,000 115
Clayton Homes, Inc.................... 4,800 55
(a)Clear Channel Communications,
Inc................................. 3,800 262
Clorox Co............................. 1,988 212
CMS Energy Corp....................... 2,800 117
CNF Transportation, Inc............... 1,800 69
Coastal Corp.......................... 4,600 184
Coca-Cola Bottling Co................. 2,100 118
Coca-Cola Co.......................... 32,600 2,037
Coca-Cola Enterprises, Inc............ 5,900 176
(a)Cognex Corp........................ 8,000 252
Colgate Palmolive Co.................. 4,100 405
Columbia HCA/Healthcare Corp.......... 10,400 237
Comair Holdings, Inc.................. 18,900 393
Comcast Corp.......................... 10,400 400
Comdisco, Inc......................... 4,800 123
Comerica, Inc......................... 2,500 149
Commerce Bancorp, Inc................. 4,700 201
Commercial Federal Corp............... 12,700 294
Commercial Metals Co.................. 5,000 142
Commonwealth Energy Systems........... 4,200 176
(a)CommScope, Inc..................... 8,800 271
Compaq Computer Corp.................. 23,500 557
Computer Associates International,
Inc................................. 7,800 429
(a)Computer Sciences Corp............. 2,400 166
Computer Task Group, Inc.............. 4,700 80
Comsat Corp........................... 900 29
(a)Comverse Technology, Inc........... 1,950 147
Conagra, Inc.......................... 7,300 194
(a)Concord EFS, Inc................... 2,900 123
Conectiv, Inc......................... 4,100 100
(a)Conexant Systems, Inc.............. 1,800 105
Conseco, Inc.......................... 4,400 134
Consolidated Edison, Inc.............. 3,500 158
(a)Consolidated Graphics, Inc......... 3,300 165
Consolidated Papers, Inc.............. 3,900 104
(a)Consolidated Stores Corp........... 2,400 65
(a)Convergys Corp..................... 4,400 85
Cooper Companies, Inc................. 4,400 110
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-77
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONT.)
Cooper Industries, Inc................ 3,000 $ 156
Corn Products International, Inc...... 7,100 216
Corning, Inc.......................... 3,900 273
(a)Costco Cos., Inc................... 3,200 256
Countrywide Credit Industries, Inc.... 2,200 94
(a)Covance, Inc....................... 1,800 43
(a)Coventry Health Care, Inc.......... 12,000 131
Crompton & Knowles Corp............... 2,800 55
Cross Timbers Oil Co.................. 10,600 158
CSX Corp.............................. 3,500 159
CTS Corp.............................. 4,100 287
Cullen/Frost Bankers, Inc............. 10,600 292
Cummins Engine........................ 300 17
CVS Corp.............................. 5,800 297
D.R. Horton, Inc...................... 12,000 199
Dallas Semiconductor Corp............. 6,700 338
Dana Corp............................. 4,000 184
Dayton Hudson Corp.................... 6,700 435
Dean Foods Co......................... 1,200 50
Deere & Co............................ 3,700 147
(a)Dell Computer Corp................. 35,000 1,295
(a)Delphi Automotive Systems Corp..... 6,709 125
Delphi Financial Group, Inc. 'A'...... 4,692 168
Delta & Pine Land Co.................. 8,000 252
Delta Airlines, Inc................... 1,900 109
DENTSPLY International, Inc........... 2,300 66
Devon Energy Corp..................... 7,000 250
(a)DeVry, Inc......................... 13,800 309
Diagnostic Products Corp.............. 5,000 138
Dial Corp............................. 3,200 119
Diebold, Inc.......................... 1,900 55
Dime Bancorp, Inc..................... 2,500 50
Dimon, Inc............................ 9,100 47
(a)Dionex Corp........................ 5,000 202
(a)Discount Auto Parts, Inc........... 4,600 111
Dole Food Co., Inc.................... 2,000 59
(a)Dollar Tree Stores, Inc............ 1,900 84
Dominion Resources, Inc............... 3,600 156
Donaldson Co., Inc.................... 3,400 83
Dover Corp............................ 4,300 150
Dow Chemical Co....................... 4,200 533
Downey Financial Corp................. 5,900 129
DPL, Inc.............................. 3,700 68
(a)Dress Barn, Inc.................... 7,100 114
DTE Energy Co......................... 1,800 72
Du Pont (EI) de Nemours Co............ 16,000 1,093
Duke Power Co......................... 4,500 245
Dun & Brandstreet Corp................ 4,000 142
(a)E*TRADE Group, Inc................. 43,600 1,741
Earthgrains Co........................ 8,300 214
Eastern Utilities Association......... 5,600 163
Eastman Kodak Co...................... 4,700 318
Eaton Vance Corp...................... 6,100 210
Edison International Corp............. 5,100 136
El Paso Energy Corp................... 3,100 109
Electronic Data Systems Corp.......... 6,900 390
Electronics For Imaging, Inc.......... 2,000 109
Eli Lilly & Co........................ 14,900 1,067
(a)EMC Corp........................... 14,000 770
Emerson Electric Co................... 5,800 365
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Energen Corp.......................... 6,400 $ 119
Energy East Corp...................... 3,600 94
Enhance Financial Services Group,
Inc................................. 8,100 160
Enron Corp............................ 4,900 401
Ensco International, Inc.............. 4,200 84
Entergy Corp.......................... 3,700 116
(a)Enzo Biochem, Inc.................. 9,800 97
Equifax, Inc.......................... 2,300 82
(a)Etec Systems, Inc.................. 5,000 166
Ethan Allen Interiors, Inc............ 9,600 362
Executive Risk, Inc................... 3,000 255
Expeditors International of
Washington, Inc..................... 10,000 272
(a)Express Scripts, Inc. 'A'.......... 6,700 403
Exxon Corp............................ 32,200 2,483
Fair, Issac & Co., Inc................ 3,600 126
Family Dollar Stores, Inc............. 5,400 130
(a)Family Golf Centers, Inc........... 5,800 45
Fannie Mae Corp....................... 13,600 930
Fastenal Co........................... 1,400 73
(a)FDX Corp........................... 5,000 271
Federal Home Loan Mortgage Corp....... 8,700 505
Federal Signal Corp................... 2,400 51
Federal-Mogul Corp.................... 2,000 104
(a)Federated Department Stores........ 3,900 206
Fidelity National Financial, Inc...... 6,270 132
Fifth Third Bancorp................... 4,000 266
Finova Group, Inc..................... 1,700 89
First American Financial Corp......... 10,800 193
First Data Corp....................... 6,700 328
First Midwest Bancorp, Inc............ 5,900 235
First Security Corp................... 5,100 139
First Tennessee National Corp......... 3,500 134
First Union Corp. (N.C.).............. 12,800 602
First Virginia Banks, Inc............. 1,500 74
Firstbancorp/Puerto Rico.............. 6,000 135
Firstenergy Corp...................... 3,500 109
Firstmerit Corp....................... 13,000 365
(a)Fiserv, Inc........................ 3,300 103
Fleet Financial Group, Inc............ 7,200 319
Fleming Cos., Inc..................... 10,100 117
Florida Progress Corp................. 1,900 78
Florida Rock Industries, Inc.......... 4,300 196
Flowers Industries, Inc............... 3,700 80
(a)Foodmaker, Inc..................... 8,600 244
(a)Footstar, Inc...................... 5,500 205
Ford Motor Co......................... 17,100 965
(a)Forest Laboratories, Inc. 'A'...... 2,500 116
Fort James Corp....................... 4,100 155
Fortune Brands, Inc................... 3,300 137
(a)Foundation Health Systems 'A'...... 6,600 99
FPL Group, Inc........................ 2,100 115
(a)Franklin Covey Co.................. 6,700 49
Franklin Resources, Inc............... 3,900 158
Fremont General Corp.................. 13,700 259
Frontier Corp......................... 3,100 183
Frontier Insurance Group, Inc......... 9,400 145
(a)Furniture Brands International,
Inc................................. 1,800 50
G & K Services Inc. 'A'............... 4,500 236
Gallagher (Arthur J.) & Co............ 3,200 158
Gannett Co., Inc...................... 3,900 278
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-78
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONT.)
Gap, Inc.............................. 12,525 $ 631
(a)Gateway 2000, Inc.................. 2,600 153
Gatx Corp............................. 2,600 99
General Dynamics Corp................. 2,200 151
General Electric Co................... 45,700 5,164
General Mills, Inc.................... 2,700 217
General Motors Corp................... 9,600 634
(a)Genesis Health Ventures, Inc....... 8,800 26
(a)Gentex Corp........................ 13,800 386
(a)Genzyme Corp....................... 2,400 116
(a)Genzyme Surgical Products.......... 429 2
Geon Co............................... 5,200 168
Georgia-Pacific Corp.................. 6,600 313
Georgia-Pacific Corp. (Timber
Group).............................. 3,100 78
Gerber Scientific, Inc................ 5,900 130
Gillette Co........................... 15,300 627
(a)Global Marine, Inc................. 5,800 90
(a)Golden State Bancorp, Inc.......... 1,000 1
Golden West Financial Corp............ 1,100 108
Goodyear Tire & Rubber Co............. 4,200 247
GPU, Inc.............................. 2,100 89
Graco, Inc............................ 3,700 109
Greenpoint Financial Corp............. 2,400 79
GTE Corp.............................. 13,100 992
Guidant Corp.......................... 4,500 231
Guilford Mills, Inc................... 9,500 99
(a)Gulfstream Aerospace Corp.......... 2,400 162
H.J. Heinz Co......................... 5,100 256
(a)Ha-Lo Industries, Inc.............. 8,850 87
(a)Hadco Corp......................... 3,000 119
Halliburton Co........................ 6,300 285
Hannaford Brothers Co................. 1,900 102
Harley-Davidson, Inc.................. 4,700 256
Harman International Industries,
Inc................................. 4,400 194
Harsco Corp........................... 1,500 48
Hartford Financial Services Group..... 3,000 175
(a)Health Management Associates, Inc.
'A'................................. 7,400 83
(a)HEALTHSOUTH Corp................... 9,000 134
(a)Heartland Express, Inc............. 7,000 115
Henry (Jack) & Associates............. 4,100 161
Herman Miller, Inc.................... 2,500 53
Hershey Foods Corp.................... 2,100 125
Hewlett-Packard Co.................... 14,500 1,457
Hibernia Corp. 'A'.................... 5,100 80
Hillenbrand Industries, Inc........... 2,200 95
Hilton Hotels Corp.................... 4,500 64
(a)HNC Software, Inc.................. 5,200 160
Home Depot, Inc....................... 19,600 1,263
HON INDUSTRIES, Inc................... 2,100 61
Honeywell, Inc........................ 2,100 243
Hormel Foods Corp..................... 2,400 97
Household Internaional, Inc........... 6,800 322
Hubbell Inc. 'B'...................... 2,900 132
Hudson United Bancorp................. 8,000 245
Hughes Supply, Inc.................... 6,200 184
Huntington Bancshares, Inc............ 3,700 130
(a)Hutchinson Technology, Inc......... 5,700 158
(a)Hyperion Solutions Corp............ 6,000 107
IBP, Inc.............................. 3,200 76
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
ICN Pharmaceuticals, Inc.............. 2,800 $ 90
(a)IDEXX Laboratories, Inc............ 8,100 189
(a)IHOP Corp.......................... 5,200 125
Illinois Tool Works, Inc.............. 4,000 328
Illinova Corp......................... 2,900 79
IMC Global, Inc....................... 4,000 71
IMS Health, Inc....................... 5,600 175
(a)Inacom Corp........................ 6,272 79
(a)Incyte Pharmaceuticals, Inc........ 6,300 167
(a)Informix Corp...................... 5,600 48
Ingersoll-Rand Co..................... 2,800 181
(a)Input/Output, Inc.................. 10,300 78
(a)Insituform Technologies, Inc.
'A'................................. 8,200 177
(a)Integrated Health Services, Inc.... 12,400 99
Intel Corp............................ 45,600 2,713
Inter-Tel, Inc........................ 6,100 111
Interface, Inc........................ 13,000 112
(a)Interim Services, Inc.............. 10,600 219
Intermet Corp......................... 6,000 91
International Business Machines
Corp................................ 25,400 3,283
International Game Technology......... 4,000 74
International Paper Co................ 6,400 323
(a)International Rectifier Corp....... 14,200 189
Interstate Bakeries Corp.............. 2,300 52
(a)Intuit, Inc........................ 1,700 153
(a)Ionics, Inc........................ 4,400 161
IPALCO Enterprises, Inc............... 3,400 72
ITT Industries, Inc................... 2,400 92
Ivacare Corp.......................... 6,800 182
J.C. Penney Co., Inc.................. 3,900 189
Jefferson-Pilot Corp.................. 1,500 99
JLG Industries, Inc................... 9,500 194
John H. Harland Co.................... 7,100 142
Johnson & Johnson..................... 17,800 1,744
(a)Jones Apparel Group, Inc........... 3,300 113
Jones Pharma., Inc.................... 6,200 244
JSB Financial......................... 1,800 92
(a)Just For Feet, Inc................. 7,300 47
Justin Industries..................... 7,300 102
Kaman Corp. 'A'....................... 7,600 119
Kansas City Southern Industries,
Inc................................. 3,300 211
Kaydon Corp........................... 1,300 44
(a)Keane, Inc......................... 2,000 45
Kellogg Co............................ 5,100 168
Kellwood Co........................... 5,600 152
Kelly Services Inc. 'A'............... 1,600 51
(a)Kemet Corp......................... 8,600 197
(a)Kent Electronics Corp.............. 8,300 164
Keycorp............................... 6,500 209
Keyspan Energy Corp................... 4,100 108
Keystone Financial, Inc............... 11,900 352
Kimberly-Clark Corp................... 7,400 422
(a)Kirby Corp......................... 3,600 76
(a)Kmart Corp......................... 9,700 159
KN Energy, Inc........................ 2,200 29
(a)Kohls Corp......................... 2,600 201
(a)Kroger Co.......................... 13,200 369
(a)Kulicke & Soffa Industries......... 5,900 158
La-Z-Boy, Inc......................... 10,900 251
(a)Lakes Gaming, Inc.................. 2,950 32
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-79
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONT.)
Lancaster Colony Corp................. 1,900 $ 66
(a)Landstar System, Inc............... 2,100 76
(a)Lattice Semiconductor Corp......... 5,000 311
(a)Lear Corp.......................... 2,100 104
Lee Enterprises....................... 2,700 82
(a)Legato Systems, Inc................ 1,100 64
Legg Mason, Inc....................... 12,300 474
Leggett & Platt, Inc.................. 5,800 161
Lehman Brothers Holdings, Inc......... 3,500 218
(a)Lexmark International Group,
Inc................................. 3,800 251
LG&E Energy Corp...................... 2,900 61
Libbey, Inc........................... 3,700 107
(a)LifePoint Hospitals, Inc........... 547 7
Lilly Industries, Inc. 'A'............ 5,200 97
(a)Lincare Holdings, Inc.............. 2,100 53
Lincoln National Corp................. 3,200 167
Linear Technology Corp................ 4,400 296
(a)Linens 'n Things, Inc.............. 7,800 341
Litton Industries, Inc................ 1,500 108
Lockheed Martin Corp.................. 5,900 220
Loews Corp............................ 1,800 142
Lone Star Industries, Inc............. 5,300 199
Lowe's Cos., Inc...................... 8,840 501
Lubrizol Corp......................... 3,100 84
Luby's Cafeterias, Inc................ 8,800 132
Lucent Technologies, Inc.............. 41,045 2,768
Lyondell Petrochemical Co............. 2,900 60
Macdermid, Inc........................ 5,400 251
(a)Macromedia, Inc.................... 8,300 293
Maf Bancorp, Inc...................... 2,800 68
(a)Mandalay Resort Group.............. 3,700 78
Manitowoc Co., Inc.................... 5,550 231
Manpower, Inc......................... 2,700 61
Marriott International 'A'............ 4,700 176
Marsh & McLennan Cos., Inc............ 3,600 272
Marshall & Ilsley Corp................ 2,900 187
(a)Marshall Industries................ 6,700 241
Martin Marietta Corp.................. 1,700 100
Masco Corp............................ 5,300 153
Mattel, Inc........................... 4,200 111
(a)Maxim Integrated Products.......... 3,800 253
May Department Stores Co.............. 6,000 245
Maytag Corp........................... 2,400 167
MBIA, Inc............................. 2,300 149
MBNA Corp............................. 10,300 315
McCormick & Co., Inc.................. 2,900 92
McDonald's Corp....................... 18,300 756
McGraw-Hill Cos., Inc................. 3,700 200
MCI WorldCom, Inc..................... 24,200 2,087
Mckesson Corp......................... 7,699 247
MCN Corp.............................. 2,400 50
Media General, Inc. 'A'............... 1,400 71
(a)MediaOne Group, Inc................ 8,400 625
(a)Medimmune, Inc..................... 10,700 725
(a)Medquist, Inc...................... 4,900 214
Medtronic, Inc........................ 6,700 522
Mellon Bank Corp...................... 7,200 262
(a)Men's Warehouse, Inc............... 6,800 173
Mercantile Bancorp.................... 2,600 $ 149
Mercantile Bankshares Corp............ 2,600 92
Merck & Co., Inc...................... 31,700 2,346
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
(a)Mercury Interactive................ 7,600 269
Merrill Lynch & Co., Inc.............. 4,900 392
Methode Electronics 'A'............... 8,600 197
(a)Metro Networks, Inc................ 3,500 187
MGIC Investment Corp.................. 2,500 122
(a)Michaels Stores, Inc............... 6,400 196
(a)Microchip Technology, Inc.......... 1,600 76
(a)Micron Technology, Inc............. 3,800 153
(a)Micros Systems, Inc................ 3,500 119
(a)Microsoft Corp..................... 66,200 5,970
MidAmerican Energy Holdings Co........ 2,300 80
Midas, Inc............................ 1 --
(a)Midway Games, Inc.................. 8,800 114
Minnesota Mining & Manufacturing
Co.................................. 5,800 504
Minnesota Power & Light Co............ 3,000 60
Mississippi Chemical Corp............. 7,300 72
Mobil Corp............................ 10,500 1,039
(a)Modis Professional Services,
Inc................................. 3,800 52
(a)Mohawk Industries, Inc............. 10,600 322
Molex, Inc............................ 4,800 178
Monsanto.............................. 8,800 347
Montana Power Co...................... 1,500 106
Morgan (J.P.) & Co., Inc.............. 2,700 379
(a)Morrison Knudsen Corp.............. 13,600 140
Motorola, Inc......................... 9,100 862
(a)MS Carriers........................ 4,700 139
(a)Mueller Industries, Inc............ 8,800 299
Murphy Oil Corp....................... 2,500 122
Mutual Risk Management Ltd............ 7,700 257
Myers Industries, Inc................. 5,000 100
Mylan Laboratories, Inc............... 3,900 103
Nabisco Group Holdings Corp........... 4,700 92
(a)Nabors Industries, Inc............. 3,400 83
National City Corp.................... 3,900 255
National Computer Systems, Inc........ 6,500 219
National Data Corp.................... 8,300 355
National Fuel Gas Co.................. 1,400 68
(a)National Instruments Corp.......... 6,600 266
(a)Nautica Enterprises, Inc........... 8,500 143
(a)NBTY, Inc.......................... 13,900 90
NCR Corp.............................. 3,100 151
(a)NCS Healthcare, Inc................ 5,300 29
(a)Networks Associates, Inc........... 3,700 54
Nevada Power Co....................... 3,100 78
New England Business Services, Inc.... 3,500 108
New England Electric System........... 2,100 105
New Jersey Resources Corp............. 4,100 153
New York Times Co. 'A'................ 3,100 114
Newell Rubbermaid Inc................. 5,501 256
(a)Newfield Exploration Co............ 7,600 216
(a)Nextel Communications Inc. 'A'..... 5,600 281
(a)NFO Worldwide, Inc................. 12,600 176
Nike, Inc. 'B'........................ 4,500 285
NiSource Inc.......................... 2,500 65
Noble Affiliates, Inc................. 2,300 65
(a)Noble Drilling Corp................ 4,000 79
Norfolk Southern Corp................. 5,200 157
UNITED STATES (CONT.)
Norrell Corp.......................... 7,700 $ 145
Nortel Networks Corp.................. 8,800 764
(a)North American Vaccine, Inc........ 6,400 31
North Fork Bancorp, Inc............... 2,900 62
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-80
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
(a)Northeast Utilities................ 4,000 71
Northern Trust Corp................... 2,100 204
Northwest Natural Gas Co.............. 5,500 133
(a)Nova Corp/Georgia.................. 2,200 55
(a)Novell, Inc........................ 5,900 156
(a)Novellus Systems, Inc.............. 7,700 526
(a)O'Reilly Automotive, Inc........... 4,800 242
(a)Oak Industries, Inc................ 4,300 188
Oakwood Homes Corp.................... 10,100 133
Occidental Petroleum Corp............. 5,300 112
(a)Office Depot, Inc.................. 11,250 248
Ogden Corp............................ 2,000 54
OGE Energy Corp....................... 4,400 105
Old Kent Financial Corp............... 3,045 128
Old Republic International Corp....... 3,100 54
Olin Corp............................. 2,400 32
Om Group, Inc......................... 5,600 193
Omnicare, Inc......................... 2,800 35
Omnicon Group, Inc.................... 3,300 264
(a)Oracle System Corp................. 20,100 746
Orange & Rockland Utilities, Inc...... 2,200 129
(a)Orbital Sciences Corp.............. 7,700 182
Orion Capital Corp.................... 6,700 240
(a)Orthodontic Centers of America..... 11,500 162
(a)Outback Steakhouse, Inc............ 2,400 94
Owens & Minor, Inc.................... 8,800 97
(a)Owens-Illinois, Inc................ 3,300 108
(a)Oxford Health Plans, Inc........... 2,600 40
Pacific Century Financial Corp........ 3,400 73
(a)Pacific Sunwear of California...... 6,000 146
(a)Pacificare Health Systems.......... 1,400 101
PacifiCorp............................ 4,400 81
Paine Webber Group, Inc............... 4,000 187
(a)Parexel International Corp......... 4,700 63
(a)Park Place Entertainment Corp...... 11,800 114
(a)Patterson Dental Co................ 6,200 215
(a)Paxar.............................. 11,100 100
Paychex, Inc.......................... 3,750 120
Peco Energy Co........................ 3,100 130
(a)Pediatrix Medical Group, Inc....... 3,400 72
Pennsylvania Enterprises, Inc......... 4,000 123
Pentair, Inc.......................... 1,500 69
Pepsico, Inc.......................... 20,100 778
Pfizer, Inc........................... 17,600 1,932
PG&E Corp............................. 5,700 185
(a)Pharmaceutical Product
Development......................... 4,900 134
Pharmacia & Upjohn, Inc............... 7,300 415
Philadelphia Suburban Corp............ 6,300 145
Philip Morris Cos., Inc............... 32,600 1,310
Phillips Petroleum Co................. 4,100 206
Phillips-Van Heusen Corp.............. 9,800 97
(a)Photronics, Inc.................... 5,900 145
(a)Phycor, Inc........................ 16,500 122
Piedmont Natural Gas Co............... 4,800 149
Pier 1 Imports, Inc................... 21,800 245
Pillowtex Corp........................ 3,900 $ 64
Pinnacle West Capital Corp............ 2,300 93
(a)Pioneer Group, Inc................. 6,400 110
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Pioneer Hi-Bred International, Inc.... 3,700 144
Pitney Bowes, Inc..................... 4,400 283
Pittston Brinks Group................. 1,800 48
(a)Plains Resources, Inc.............. 5,900 112
(a)Platinum Technology, Inc........... 2,800 82
PMI Group, Inc........................ 1,000 63
PNC Bank Corp......................... 4,100 236
Pogo Producing Co..................... 10,800 201
Polaris Industries, Inc............... 5,300 231
(a)Policy Management Systems Corp..... 1,200 36
Potomac Electric Power Co............. 3,000 88
PPG Industries, Inc................... 4,600 272
Praxair, Inc.......................... 3,500 171
Premark International, Inc............ 2,500 94
(a)Prepaid Legal Services, Inc........ 5,400 147
(a)Pride International, Inc........... 10,900 115
(a)Primark Corp....................... 5,600 157
(a)Prime Hospitality Corp............. 14,200 170
(a)Priority Healthcare Corp........... 3,426 118
Procter & Gamble Co................... 17,600 1,571
(a)Progress Software Corp............. 3,700 105
Progressive Corp...................... 1,200 174
(a)Promus Company, Inc................ 2,800 87
Protective Life Corp.................. 2,300 76
(a)Protein Design Labs, Inc........... 3,800 84
Provident Financial Group............. 1,400 61
Providian Financial Corp.............. 2,750 257
Public Service Co. of New Mexico...... 2,600 52
Public Service Enterprise Group,
Inc................................. 3,000 123
Puget Sound Energy, Inc............... 3,000 72
Quaker Oats, Co....................... 2,600 173
(a)Qualcomm, Inc...................... 4,200 603
(a)Quantum Corp....................... 5,300 128
Queens County Bancorp, Inc............ 4,400 142
Questar Corp.......................... 2,900 55
(a)Quintiles Transnational Corp....... 7,996 336
(a)R.J. Reynolds Tobacco Holdings,
Inc................................. 1,566 49
(a)Ralcorp Holdings, Inc.............. 7,000 112
Ralston-Ralston Purina Group.......... 4,700 143
Raymond James Financial, Inc.......... 10,100 242
Rayonier, Inc......................... 1,400 70
Raytheon Co., 'B'..................... 5,500 387
(a)Read-Rite Corp..................... 10,800 67
Regal Beloit.......................... 4,900 116
Regions Financial Corp................ 3,700 142
Regis Corp............................ 7,650 147
Reliance Steel & Aluminum............. 4,000 156
Reliant Energy, Inc................... 3,800 105
Reliastar Financial Corp.............. 2,300 101
(a)Renal Care Group, Inc.............. 9,200 238
Republic New York Corp................ 1,800 123
(a)Respironics, Inc................... 7,000 106
Reynolds & Reynolds Co. 'A'........... 2,700 63
Richfood Holdings, Inc................ 9,900 174
Riggs National Corp. of Washington
D.C................................. 5,800 119
Rite Aid Corp......................... 3,800 94
(a)Robert Half International, Inc..... 2,800 73
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-81
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONT.)
(a)Roberts Pharmaceutical Corp........ 7,400 $ 179
Rockwell International Corp........... 3,800 231
Rohm & Haas Co........................ 5,100 219
Rollins Truck Leasing Corp............ 12,600 140
Roper Industries, Inc................. 8,000 256
Ross Stores, Inc...................... 1,400 71
RPM, Inc.............................. 4,700 67
Ruby Tuesday, Inc..................... 7,300 139
Russ Berrie & Co., Inc................ 5,600 139
(a)Ryan's Family Steak Houses, Inc.... 11,400 133
(a)Safe Skin Corp..................... 11,000 132
Safeco Corp........................... 2,200 97
(a)Saks, Inc.......................... 4,100 118
(a)Samina Corp........................ 8,500 645
(a)Santa Fe Snyder Corp............... 36,455 278
Sara Lee Corp......................... 12,700 288
SBC Communications, Inc............... 25,798 1,496
Scana Corp............................ 2,500 58
Schering-Plough Corp.................. 19,900 1,055
Schwab (Charles) Corp................. 5,900 648
(a)SCI Systems, Inc................... 1,900 90
(a)Seagate Technology, Inc............ 3,900 100
Seagram Co., Ltd...................... 5,400 272
Sears, Roebuck & Co................... 5,800 258
SEI Corp.............................. 3,700 327
Selective Insurance Group, Inc........ 7,200 137
Sempra Energy......................... 4,401 100
(a)Sepracor Inc....................... 800 65
Service Corp. International........... 3,900 75
(a)Service Experts, Inc............... 4,300 94
(a)Shaw Industries, Inc............... 4,400 73
Sherwin-Williams Co................... 4,300 119
(a)Shopko Stores, Inc................. 5,900 214
(a)Shorewood Packaging................ 6,200 114
(a)Siebel Systems, Inc................ 2,500 166
(a)Sierra Health Services, Inc........ 6,700 97
Sierra Pac Res Com.................... 4,700 171
(a)Silicon Valley Bancshares.......... 4,900 121
Skywest, Inc.......................... 4,900 122
SLM Holding Corp...................... 2,500 115
(a)Smith International, Inc........... 1,700 74
(a)Smithfield Foods, Inc.............. 7,700 257
(a)Snyder Communications, Inc......... 2,100 69
(a)Sola International, Inc............ 6,400 124
Solutia, Inc.......................... 3,400 72
Sonat, Inc............................ 2,500 83
Sonoco Products Co.................... 3,100 93
Sotheby's Holdings, Inc. 'A'.......... 2,100 80
Southdown, Inc........................ 1,500 96
Southern Co........................... 10,700 284
Southtrust Corp....................... 4,600 177
Southwest Airlines Co................. 4,200 131
Southwest Gas Corp.................... 6,400 183
Southwestern Energy Co................ 8,500 90
Sovereign Bancorp, Inc................ 5,800 70
Sprint Corp........................... 11,800 623
(a)Sprint Corp........................ 3,050 174
(a)SPS Technologies, Inc.............. 2,900 109
(a)SPX Corp........................... 1,200 100
St. John Knits, Inc................... 4,400 129
St. Paul Bancorp, Inc................. 7,600 194
St. Paul Cos., Inc.................... 4,901 156
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Standard Motor Products............... 3,700 $ 91
Standard Products Co.................. 6,400 164
(a)Staples, Inc....................... 7,250 224
(a)Starbucks Corp..................... 5,400 203
Statestreet Corp...................... 3,000 256
(a)Steris Corp........................ 2,100 41
(a)Sterling Commerce, Inc............. 2,600 95
(a)Sterling Software, Inc............. 2,500 67
Stewart Enterprises, Inc. 'A'......... 3,600 52
(a)Stillwater Mining Co............... 7,200 235
Stone & Webster, Inc.................. 3,700 99
(a)Storage Technology Corp............ 3,000 68
Stride Rite Corp...................... 9,700 100
Stryker Corp.......................... 2,800 168
Sturm Ruger & Co., Inc................ 6,700 72
Summit Bancorp........................ 3,200 134
(a)Sun Microsystems, Inc.............. 10,800 744
(a)Sunguard Data Systems, Inc......... 3,000 104
(a)Sunrise Medical, Inc............... 7,900 56
Suntrust Banks, Inc................... 3,100 215
(a)Superior Services, Inc............. 5,900 157
Susquehanna Bancshares, Inc........... 6,100 108
(a)Sybron International Corp.......... 3,300 91
Symbol Technologies, Inc.............. 2,700 100
(a)Synopsys, Inc...................... 2,000 110
Synovus Financial Corp................ 4,400 87
Sysco Corp............................ 5,600 167
T. Rowe Price Associates, Inc......... 3,500 134
(a)TALK.com, Inc...................... 15,000 169
TCA Cable TV, Inc..................... 1,800 100
TCF Financial Corp.................... 2,500 70
(a)Tech Data Corp..................... 1,600 61
Technitrol, Inc....................... 4,300 139
(a)Technology Solutions Co............ 9,700 105
Teco Energy, Inc...................... 2,900 66
Teleflex, Inc......................... 1,700 74
Telephone & Data Systems, Inc......... 2,100 153
(a)Tellabs, Inc....................... 8,000 540
(a)Tenet Healthcare Corp.............. 5,200 97
(a)Teradyne, Inc...................... 2,500 179
Texaco, Inc........................... 7,200 450
Texas Industries, Inc................. 4,600 178
Texas Instruments, Inc................ 5,600 812
Texas Utilities Co.................... 3,900 161
Textron, Inc.......................... 3,000 247
(a)The Cheesecake Factory, Inc........ 4,600 140
The Interpublic Group of Cos., Inc.... 2,800 243
The Limited, Inc...................... 4,100 186
The Marcus Corporation................ 7,900 97
(a)The Scott Company.................. 4,500 214
Thomas Industries, Inc................ 5,300 109
(a)3Com Corp.......................... 5,200 139
Tidewater, Inc........................ 2,000 61
Tiffany & Co.......................... 1,300 125
(a)Timberland Co. 'A'................. 3,000 204
Time Warner, Inc...................... 16,400 1,205
Times Mirror Co. 'A'.................. 1,300 77
TJX Companies, Inc.................... 5,000 167
TNP Enterprises, Inc.................. 3,300 120
(a)Toll Brothers, Inc................. 7,800 167
Torchmark Corp........................ 2,300 78
Tosco Corp............................ 4,600 119
(a)Total Renal Care Holdings, Inc..... 2,600 40
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-82
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONT.)
Transamerica Corp..................... 1,700 $ 128
Transocean Offshore, Inc.............. 2,900 76
Tredegar Industries, Inc.............. 7,100 154
Trenwick Group, Inc................... 3,000 74
(a)Triad Hospitals, Inc............... 547 7
(a)Triarc Companies................... 6,800 144
Tribune Co............................ 2,200 192
(a)Tricon Global Restaurants, Inc..... 2,400 130
(a)Trigon Healthcare, Inc............. 1,600 58
Trinity Industries, Inc............... 1,500 50
True North Communications, Inc........ 9,500 285
Trustco Bank Corp..................... 5,000 134
TRW, Inc.............................. 2,500 137
(a)Tuboscope, Inc..................... 10,900 149
Tyco International Ltd................ 12,328 1,168
Tyson Foods, Inc...................... 6,500 146
(a)U.S. Airways Group, Inc............ 1,600 70
U.S. Bancorp.......................... 10,400 354
(a)U.S. Foodservice, Inc.............. 1,500 64
U.S. Freightways Corp................. 5,500 255
(a)U.S. Home Corp..................... 3,700 131
(a)U.S. Onconlogy, Inc................ 7,000 84
U.S. Trust Corp....................... 3,500 324
U.S. West, Inc........................ 6,800 399
Ultramar Diamond Shamrock Corp........ 2,900 63
(a)Ultratech Stepper, Inc............. 5,200 78
Unicom Corp........................... 3,700 143
Union Carbide Corp.................... 3,600 175
Union Pacific Corp.................... 3,600 210
Union Planters Corp................... 2,600 116
(a)Unisys Corp........................ 4,000 156
United Bankshares, Inc................ 7,400 196
United Healthcare Corp................ 3,500 219
United Illuminating Co................ 3,400 144
United Technologies Corp.............. 7,948 570
United Water Resources, Inc........... 8,600 195
(a)Unitrode Corp...................... 8,500 244
Universal Corp........................ 1,500 43
Universal Foods Corp.................. 2,600 55
(a)Universal Health Services, Inc..... 7,000 334
Unocal Corp........................... 4,500 178
UNUM Corp............................. 2,300 126
UST, Inc.............................. 3,100 91
USX-Marathon Group.................... 5,000 163
UtliCorp. United, Inc................. 3,750 91
(a)Valassis Communications, Inc....... 10,950 401
Valmont Industries.................... 5,700 97
(a)Vertex Pharmaceuticals, Inc........ 5,500 133
(a)Viacom, Inc., 'B'.................. 10,200 449
Viad Corp............................. 3,300 102
(a)Vicor Corp......................... 11,800 250
Vintage Petroleum, Inc................ 13,000 140
(a)Visx, Inc.......................... 12,400 982
(a)Vitesse Semiconductor.............. 14,500 978
Vodafone Group plc ADR................ 4,200 827
Vulcan Materials Co................... 3,300 159
Wabash National Corp.................. 6,400 124
Wachovia Corp......................... 2,600 222
Wal-Mart Stores, Inc.................. 59,984 2,894
Walgreen Co........................... 12,900 379
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Wallace Computer Services, Inc........ 2,100 $ 53
Walt Disney Co........................ 27,900 860
Warnaco Group......................... 2,100 56
Warner-Lambert Co..................... 11,200 777
Washington Mutual, Inc................ 8,100 287
Washington Post Co. 'B'............... 400 215
Waste Management, Inc................. 8,200 441
Watsoc, Inc........................... 5,200 85
(a)Watson Pharmaceuticals, Inc........ 2,600 91
WD-40 Co.............................. 6,000 150
(a)Weatherford International, Inc..... 3,500 128
Wells Fargo Co........................ 21,400 915
Werner Enterprises, Inc............... 9,900 205
Westpoint Stevens, Inc................ 2,300 69
(a)Westwood One Inc................... 7,100 253
Weyerhaeuser Co....................... 4,500 309
Whitman Corp.......................... 3,800 68
Whitney Holding Corp.................. 4,100 163
(a)Whittman-Hart, Inc................. 9,800 311
(a)Whole Foods Market, Inc............ 5,300 255
Wicor, Inc............................ 9,800 274
Williams Cos., Inc.................... 6,500 277
(a)Williams-Sonoma, Inc............... 11,200 390
Wilmington Trust Corp................. 1,200 69
Winn-Dixie Stores, Inc................ 2,200 81
Wisconsin Energy...................... 3,100 78
WM. Wrigley Jr. Co.................... 1,900 171
Wolverine World Wide, Inc............. 11,800 165
(a)World Color Press, Inc............. 8,000 220
Wynn's International Inc.............. 5,300 98
Xerox Corp............................ 9,500 561
(a)Xilinx, Inc........................ 4,200 240
(a)Xircom, Inc........................ 4,700 141
XL Capital Ltd. 'A'................... 3,385 191
(a)Yellow Corp........................ 6,400 114
York International Corp............... 2,200 94
(a)Zale Corp.......................... 7,800 312
(a)Zebra Technologies Corp. 'A'....... 6,700 258
Zenith National Insurance............. 4,000 99
Zions Bancorp......................... 2,200 140
--------
237,535
--------
TOTAL COMMON STOCKS..................................... 497,797
--------
PREFERRED STOCKS (0.3%)
AUSTRALIA (0.2%)
News Corp., Ltd....................... 112,250 852
--------
AUSTRIA (0.0%)
Bau Holdings AG....................... 5 --
--------
GERMANY (0.1%)
SAP AG................................ 1,226 488
Volkswagen AG......................... 2,800 105
--------
593
--------
ITALY (0.0%)
Fiat S.p.A. (Privilegiate)............ 57,550 93
--------
NETHERLANDS (0.0%)
(a)Unilever N.V....................... 26,089 140
--------
TOTAL PREFERRED STOCKS.................................. 1,678
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-83
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------------------
INVESTMENT COMPANIES (0.8%)
UNITED STATES (0.8%)
(b)Latin American Discovery Fund,
Inc................................. 381,900 $ 3,580
(a,b)Morgan Stanley Asia-Pacific Fund,
Inc................................. 124,800 1,201
--------
TOTAL INVESTMENT COMPANIES.............................. 4,781
--------
<CAPTION>
NO. OF
RIGHTS
----------
RIGHTS (0.0%)
<S> <C> <C>
FRANCE (0.0%)
(a)Bouygues........................... 292 1
(a)LVMH Moet Hennessy Louis Vuitton... 921 27
--------
28
--------
ITALY (0.0%)
(a)Olivetti S.p.A..................... 76,180 15
--------
TOTAL RIGHTS............................................ 43
--------
<CAPTION>
NO. OF
WARRANTS
----------
WARRANTS (0.0%)
<S> <C> <C>
HONG KONG (0.0%)
(a)Hong Kong and China Gas Co., Ltd.,
expiring 9/30/99.................... 15,300 2
--------
<CAPTION>
PAR
VALUE
(000)
----------
CONVERTIBLE DEBENTURES (0.0%)
<S> <C> <C>
FRANCE (0.0%)
Casino Guichard Perrachon 4.50%,
7/12/01............................. FRF 32 28
Sodexho S.A., 6.00%, 6/7/04........... -- 4
--------
32
--------
PORTUGAL (0.0%)
(a)Jeromimo Martins................... $ 34 21
--------
TOTAL CONVERTIBLE DEBENTURES............................ 53
--------
TOTAL LONG-TERM INVESTMENTS (87.9%) (COST $426,747)..... 504,354
--------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<S> <C> <C>
- --------------------------------------------------------------------
SHORT-TERM INVESTMENT (11.2%)
REPURCHASE AGREEMENT (11.2%)
Chase Securities, Inc., 4.55%, dated $ 64,369
6/30/99, due 7/1/99, to be repurchased at
$64,377, collateralized by $67,600
Federal National Mortgage Association,
5.125%, due 2/13/04, valued at $65,779
(COST $64,369).................................... $ 64,369
--------
TOTAL INVESTMENTS IN SECURITIES (99.1%) (COST
$491,116)............................................... 568,723
FOREIGN CURRENCY (0.2%) (COST $1,098)................... 1,090
--------
TOTAL INVESTMENTS (99.3%) (COST $492,214)............... 569,813
OTHER ASSETS IN EXCESS OF LIABILITIES (0.7%)............ 3,965
--------
NET ASSETS (100%)....................................... $573,778
========
</TABLE>
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
(b) -- The Fund is advised by an affiliate which earns a
management fee as advisor to the Fund.
(c) -- All or a portion of security on loan at June 30, 1999.
ADR -- American Depositary Receipt
CVA -- Share Certificates
FRF -- French Franc
NCS -- Non Convertible Shares
RFD -- Ranked for Dividend
RNC -- Non-Convertible Savings Shares
</TABLE>
- ----------------------------------------------------------------
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------- -------- ----------
<S> <C> <C>
Finance........................... $114,118 19.9%
Services.......................... 112,281 19.6
Consumer Goods.................... 97,450 17.0
Capital Goods & Equipment......... 74,713 13.0
Energy............................ 49,083 8.6
Materials......................... 29,424 5.1
Multi-Industry.................... 19,677 3.4
Investment Companies.............. 4,781 0.8
Technology........................ 2,739 0.5
Gold Mines........................ 88 0.0
-------- ----
$504,354 87.9%
======== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-84
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -------------------------------------------------------------------------------
ASSETS:
Investments in Securities, at Value (Cost $491,116)
(including repurchase agreement of $64,369)............. $ 568,723
Foreign Currency (Cost $1,098)............................ 1,090
Cash...................................................... 68
Margin Deposit on Futures................................. 1,903
Receivable for:
Fund Shares Sold........................................ 3,579
Variation of Futures Contracts.......................... 1,199
Dividends............................................... 894
Investments Sold........................................ 531
Foreign Withholding Tax Reclaim......................... 210
Security Lending Income................................. 19
Interest................................................ 9
Cash, Held as Collateral for Securities Loaned............ 25
Other..................................................... 28
-------------
Total Assets............................................ 578,278
-------------
LIABILITIES:
Payable for:
Fund Shares Redeemed.................................... 1,038
Investments Purchased................................... 689
Distribution Fees....................................... 689
Investment Advisory Fees................................ 393
Custody Fees............................................ 195
Administrative Fees..................................... 121
Shareholder Reporting Expenses.......................... 87
Directors' Fees and Expenses............................ 53
Professional Fees....................................... 50
Collateral on Securities Loaned......................... 25
Securities Lending Expense.............................. 14
Net Unrealized Loss on Foreign Currency Exchange
Contracts............................................... 982
Other..................................................... 164
-------------
Total Liabilities....................................... 4,500
-------------
NET ASSETS................................................ $ 573,778
=============
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 35
Paid in Capital in Excess of Par.......................... 474,021
Net Unrealized Appreciation on Investments, Foreign
Currency Translations and Futures....................... 77,822
Accumulated Net Realized Gain............................. 22,117
Distributions in Excess of Net Investment Income.......... (217)
-------------
NET ASSETS.................................................. $ 573,778
=============
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $240,121,069 and 14,242,656 Shares
Outstanding)............................................ $ 16.86
=============
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share x 100 / (100 - maximum sales charge))............. $ 17.89
=============
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $232,643,456 and 14,287,124 Shares
Outstanding)*........................................... $ 16.28
=============
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $101,013,000 and 6,136,614 Shares
Outstanding)*........................................... $ 16.46
=============
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-85
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 8,772
Interest.................................................. 3,795
Security Lending.......................................... 216
Less Foreign Taxes Withheld............................... (682)
-------
Total Income............................................. 12,101
-------
EXPENSES:
Investment Advisory....................................... 5,574
Distribution Fees (Attributed to Classes A, B, and C of
$588, $2,243, and $998, respectively)................... 3,829
Administrative Fees....................................... 1,473
Transfer Agent Fees....................................... 399
Custodian Fees............................................ 386
Shareholder Reports....................................... 235
Professional Fees......................................... 58
Filing and Registration Fees.............................. 49
Other..................................................... 40
-------
Total Expenses........................................... 12,043
Less Expense Reductions.................................. (152)
-------
Net Expenses............................................. 11,891
-------
Net Investment Income/Loss.................................. 210
-------
NET REALIZED GAIN/LOSS ON:
Investments............................................... 39,780
Foreign Currency Transactions............................. (4,520)
Futures................................................... 5,283
-------
Net Realized Gain/Loss................................... 40,543
-------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... 79,385
-------
END OF THE PERIOD:
Investments............................................... 77,607
Foreign Currency Translations............................. (992)
Futures................................................... 1,207
-------
77,822
-------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... (1,563)
-------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. 38,980
-------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $39,190
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-86
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ 210 $ 1,993
Net Realized Gain/Loss.................................... 40,543 33,576
Net Unrealized Appreciation/Depreciation.................. (1,563) 47,298
------------- -------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 39,190 82,867
------------- -------------
DISTRIBUTIONS:
Net Investment Income:
Class A..................................................... (1,038) (1,628)
Class B..................................................... (488) (1,028)
Class C..................................................... (217) (1,187)
In Excess of Net Investment Income
Class A..................................................... (2,120) --
Class B..................................................... (996) --
Class C..................................................... (444) --
------------- -------------
(5,303) (3,843)
------------- -------------
Net Realized Gain:
Class A................................................... (12,336) (8,369)
Class B................................................... (12,000) (6,610)
Class C................................................... (5,364) (9,026)
------------- -------------
(29,700) (24,005)
------------- -------------
Net Decrease in Net Assets Resulting from Distributions... (35,003) (27,848)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 172,653 399,475
Distributions Reinvested.................................. 31,543 26,341
Redeemed.................................................. (230,685) (74,620)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... (26,489) 351,196
------------- -------------
Total Increase/Decrease in Net Assets..................... (22,302) 406,215
NET ASSETS--Beginning of Period............................. 596,080 189,865
------------- -------------
NET ASSETS--End of Period (Including
undistributed/distributions in excess of net investment
income of $(217) and $4,082, respectively)................ $ 573,778 $ 596,080
============= =============
- ----------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) Class A:
- ------------------------------------------------------------
Shares:
Subscribed............................................. 6,401 13,220
Distributions Reinvested............................... 953 658
Redeemed............................................... (8,806) (2,571)
------------- -------------
Net Increase/Decrease in Class A Shares Outstanding...... (1,452) 11,307
============= =============
Dollars:
Subscribed............................................. $ 102,532 $ 193,752
Distributions Reinvested............................... 14,538 9,235
Redeemed............................................... (139,451) (41,983)
------------- -------------
Net Increase/Decrease.................................... $ (22,381) $ 161,004
============= =============
Ending Paid in Capital................................... $ 192,898+ $ 215,279
============= =============
Class B:
- ------------------------------------------------------------
Shares:
Subscribed............................................. 3,651 11,944
Distributions Reinvested............................... 790 533
Redeemed............................................... (4,141) (902)
------------- -------------
Net Increase/Decrease in Class B Shares Outstanding...... 300 11,575
============= =============
Dollars:
Subscribed............................................. $ 56,414 $ 170,660
Distributions Reinvested............................... 11,694 7,277
Redeemed............................................... (64,043) (14,280)
------------- -------------
Net Increase/Decrease.................................... $ 4,065 $ 163,657
============= =============
Ending Paid in Capital................................... $ 202,973+ $ 198,908
============= =============
Class C:
- ------------------------------------------------------------
Shares:
Subscribed............................................. 871 2,310
Distributions Reinvested............................... 355 713
Redeemed............................................... (1,755) (1,171)
------------- -------------
Net Increase/Decrease in Class C Shares Outstanding...... (529) 1,852
============= =============
Dollars:
Subscribed............................................. $ 13,707 $ 35,063
Distributions Reinvested............................... 5,311 9,829
Redeemed............................................... (27,191) (18,357)
------------- -------------
Net Increase/Decrease.................................... $ (8,173) $ 26,535
============= =============
Ending Paid in Capital................................... $ 78,195+ $ 86,368
============= =============
</TABLE>
- -----------------
<TABLE>
<S> <C>
+ Ending Paid in Capital amounts do not reflect permanent book
to tax differences.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-87
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------- -----------------------------
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
------------------------------------------------- -----------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995 1999# 1998# 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 16.670 $ 16.57 $ 14.75 $ 12.60 $ 11.99 $ 16.144 $ 16.15 $ 14.46
-------- -------- ------- ------- ------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss............... 0.075 0.21 0.10 0.19 0.12 (0.043) 0.09 (0.05)
Net Realized and Unrealized Gain/Loss.... 1.211 2.07 2.76 2.82 0.67 1.164 2.01 2.73
-------- -------- ------- ------- ------- -------- -------- -------
Total From Investment Operations......... 1.286 2.28 2.86 3.01 0.79 1.121 2.10 2.68
-------- -------- ------- ------- ------- -------- -------- -------
DISTRIBUTIONS
Net Investment Income.................... (0.073) (0.35) (0.55) (0.39) -- (0.035) (0.28) (0.50)
In Excess of Net Investment Income....... (0.150) -- -- -- (0.05) (0.073) -- --
Net Realized Gain........................ (0.874) (1.83) (0.49) (0.47) (0.13) (0.874) (1.83) (0.49)
-------- -------- ------- ------- ------- -------- -------- -------
Total Distributions...................... (1.097) (2.18) (1.04) (0.86) (0.18) (0.982) (2.11) (0.99)
-------- -------- ------- ------- ------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD............. $ 16.859 $ 16.67 $ 16.57 $ 14.75 $ 12.60 $ 16.283 $ 16.14 $ 16.15
======== ======== ======= ======= ======= ======== ======== =======
TOTAL RETURN (1)........................... 8.41% 16.17% 20.61% 24.62% 6.69% 7.50% 15.33% 19.64%
======== ======== ======= ======= ======= ======== ======== =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's).......... $240,121 $261,633 $72,704 $63,706 $42,586 $232,644 $225,797 $38,962
Ratio of Expenses to Average Net Assets.... 1.70% 1.61% 1.70% 1.70% 1.70% 2.45% 2.35% 2.45%
Ratio of Net Investment Income/Loss to
Average Net Assets....................... 0.47% 1.30% 0.59% 0.71% 1.01% (0.27)% 0.60% (0.11)%
Portfolio Turnover Rate.................... 84% 108% 45% 44% 39% 84% 108% 45%
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income/ Loss........................... $ 0.00++ $ 0.02 $ 0.03 $ 0.10 $ 0.04 $ 0.00++ $ 0.02 $ 0.09
Ratios Before Expense Limitation:
Expenses to Average Net Assets........... 1.73% 1.62% 1.90% 2.06% 2.03% 2.49% 2.36% 2.65%
Net Investment Income/Loss to Average Net
Assets................................. 0.44% 1.30% 0.40% 0.35% 0.68% (0.30)% 0.60% (0.30)%
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-----------------
AUGUST 1, 1995+
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1996
<S> <C>
- -------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 13.01
---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss............... 0.30
Net Realized and Unrealized Gain/Loss.... 1.98
---------------
Total From Investment Operations......... 2.28
---------------
DISTRIBUTIONS
Net Investment Income.................... (0.35)
In Excess of Net Investment Income....... --
Net Realized Gain........................ (0.48)
---------------
Total Distributions...................... (0.83)
---------------
NET ASSET VALUE, END OF PERIOD............. $ 14.46
===============
TOTAL RETURN (1)........................... 18.08%*
===============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's).......... $ 14,786
Ratio of Expenses to Average Net Assets.... 2.45%
Ratio of Net Investment Income/Loss to
Average Net Assets....................... 0.45%
Portfolio Turnover Rate.................... 44%*
- ----------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income/ Loss........................... $ 0.22
Ratios Before Expense Limitation:
Expenses to Average Net Assets........... 2.81%
Net Investment Income/Loss to Average Net
Assets................................. 0.09%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------
YEAR ENDED JUNE 30,
-------------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 16.298 $ 16.24 $ 14.49 $ 12.43 $ 11.90
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................................ (0.043) 0.08 (0.03) 0.12 0.04
Net Realized and Unrealized Gain/Loss..................... 1.187 2.05 2.73 2.75 0.65
-------- -------- ------- ------- -------
Total From Investment Operations.......................... 1.144 2.13 2.70 2.87 0.69
-------- -------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income..................................... (0.035) (0.24) (0.46) (0.33) --
In Excess of Net Investment Income........................ (0.072) -- -- -- (0.03)
Net Realized Gain......................................... (0.874) (1.83) (0.49) (0.48) (0.13)
-------- -------- ------- ------- -------
Total Distributions....................................... (0.981) (2.07) (0.95) (0.81) (0.16)
-------- -------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 16.461 $ 16.30 $ 16.24 $ 14.49 $ 12.43
======== ======== ======= ======= =======
TOTAL RETURN (1)............................................ 7.61% 15.37% 19.69% 23.65% 5.84%
======== ======== ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $101,013 $108,650 $78,199 $63,025 $40,460
Ratio of Expenses to Average Net Assets..................... 2.45% 2.55% 2.45% 2.45% 2.45%
Ratio of Net Investment Income/Loss to Average Net Assets... (0.28)% 0.52% (0.16)% (0.04)% 0.25%
Portfolio Turnover Rate..................................... 84% 108% 45% 44% 39%
- -------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment Income/Loss........... $ 0.00++ $ 0.02 $ 0.03 $ 1.16 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 2.48% 2.56% 2.65% 2.81% 2.78%
Net Investment Income/Loss to Average Net Assets.......... (0.30)% 0.52% (0.34)% (0.40)% (0.08)%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Non-Annualized
+ The Fund began offering Class B shares on August 1, 1995.
++ Amount is less than $0.01 per share.
(1) Total return is calculated exclusive of sale charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-88
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Global Equity Allocation Fund (the "Fund") is organized as a
separate diversified fund of Van Kampen Series Fund, Inc., a Maryland
Corporation, which is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund's investment
objective seeks long-term capital appreciation by investing in equity securities
of U.S. and non-U.S. issuers in accordance with country weightings determined by
the Adviser and with stock selection within each country designed to replicate a
broad market index. The Fund commenced operations on January 4, 1993.
The Fund currently offers three classes of shares, Class A, Class B, and
Class C shares. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charges may
be waived and a contingent deferred sales charge of 1.00% imposed in the event
of certain redemptions within one year of the purchase. Class B and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
--------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First........................................ 5.00% 1.00%
Second....................................... 4.00% None
Third........................................ 3.00% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Thereafter................................... None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights. The Fund began offering the current Class B shares on August 1,
1995. Class B shares held prior to May 1, 1995 were renamed Class C shares.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the current bid and asked prices obtained from reputable
brokers. Bonds and other fixed income securities may be valued according to the
broadest and most representative market. Debt securities purchased with
remaining maturities of 60 days or less are valued at amortized cost, if it
approximates market value. All other securities and assets for which market
values are not readily available are valued at fair value as determined in good
faith by the Board of Directors, although the actual calculations may be done by
others.
2. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date net
of applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on an accrual basis except where
collection is in doubt. Income, expenses (other than class specific expenses),
and realized and unrealized gains or losses are allocated to each class of
shares based upon their relative net assets. Distributions from the Fund are
recorded on the ex-distribution date.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices. Purchases and sales of portfolio securities are translated at the
rate of exchange prevailing when such securities were purchased or sold. Income
and expenses are translated at rates prevailing when accrued. Realized and
unrealized gains and losses on securities are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and losses on foreign currency includes the net
realized amount from the sale of the currency and the amount realized
F-89
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
between trade date and settlement date on security and income transactions.
However, the foreign currency portion of gains and losses realized on sales and
maturities of foreign denominated debt securities is treated as ordinary income
for U.S. Federal income tax purposes.
5. SECURITY LENDING: The Fund may lend investment securities to qualified
institutional investors who borrow securities in order to complete certain
transactions. By lending its investment securities, the Fund attempts to
increase its net investment income through the receipt of interest on the loan.
Any gain or loss in the market price of the securities loaned that might occur
and any interest earned or dividends declared during the term of the loan would
accrue to the account of the Fund. Risks of delay in recovery of the securities
or even loss of rights in the collateral may occur should the borrower of the
securities fail financially. Risks may also arise to the extent that the value
of the collateral decreases below the value of the securities loaned.
Upon entering into a securities lending transaction the Fund receives cash,
securities issued or guaranteed by the U.S. government, or letters of credit as
collateral in an amount equal to or exceeding 100% of the current market value
of the loaned securities. Any cash received as collateral is generally invested
in interest bearing repurchase agreements with approved counterparties. A
portion of the interest received on the repurchase agreements is retained by the
Fund and the remainder is rebated to the borrower of the securities. The net
amount of interest earned and interest rebated is included in the Statement of
Operations as interest income. The value of loaned securities and related
collateral outstanding at June 30, 1999 is as follows:
<TABLE>
<CAPTION>
VALUE OF LOANED VALUE OF
SECURITIES COLLATERAL
(000) (000)
- --------------- ----------
<S> <C>
$18 $25
</TABLE>
Morgan Stanley Trust Company, a former affiliate of the Investment Subadviser,
administers the security lending program and for its services the Fund incurred
fees in the amount of $26,674 for the year ended June 30, 1999.
6. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such
taxes are generally based on income earned or gains realized or repatriated.
Taxes are accrued and applied to net investment income, net realized capital
gains, and net unrealized appreciation, as applicable, as the income is earned
or capital gains are recorded.
Net currency losses incurred after October 31 and within the taxable year are
deemed to arise on the first business day of the Fund's next taxable year. For
the period from November 1, 1998 the Fund incurred and elected to defer until
July 1, 1999, for U.S. Federal income tax purposes, net currency losses of
approximately $3,539,000.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- -------- -------- --------- -------------
<S> <C> <C> <C>
$499,287 $ 94,317 $(24,881) $69,436
</TABLE>
7. DISTRIBUTION OF INCOME AND GAINS: The amount and the character of income and
capital gain distributions to be paid by the Fund are determined in accordance
with federal income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing book and
tax treatment for foreign currency transactions, net operating losses, foreign
taxes on net realized gains and gains on certain securities of corporations
designated as "passive foreign investment companies."
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among undistributed net investment income/loss,
accumulated net realized gain/loss, and paid in capital in excess of par. For
the year ended June 30, 1999, approximately $2,548,000 has been reclassified
from distributions in excess of net investment income with $2,517,000 posted to
accumulated net realized gain and $31,000 posted to paid in capital in excess of
par.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of presenting net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., provide the Fund with investment advisory services at a fee
paid monthly and calculated at the annual rates based on average daily net
assets as indicated below. The Adviser has agreed to reduce advisory fees
payable to it and to reimburse the Fund, if necessary, if the annual operating
expenses, as defined, expressed as a percentage of average daily net assets,
exceed the maximum ratios indicated as follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- ------------ -------------- --------------
<S> <C> <C>
1.00% 1.70% 2.45%
</TABLE>
F-90
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$5,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides the
Fund with administrative services pursuant to an administrative agreement for a
monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the Fund, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B shares and Class C shares of the Fund on
an annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $776,766 for Class A shares and deferred sales charges of $2,318,
$477,072, and $10,537 for Class A shares, Class B shares, and Class C shares,
respectively.
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Trust Company ("MSTC"), a former affiliate of the
Subadvisers. Through September 30, 1998, the Fund incurred MSTC fees of
approximately $96,000. On October 1, 1998, the Chase Manhattan Bank purchased
MSTC.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
During the year ended June 30, 1999, the Fund incurred approximately $2,000 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/ dealer.
At June 30, 1999, the Fund owned shares of affiliated funds for which the Fund
earned dividend income of approximately $103,000 during the period.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $393,338,000 and sales of approximately $411,550,000
of investment securities other than long-term U.S. government securities and
short-term investments. There were no purchases or sales of long-term U.S.
government securities.
D. DERIVATIVE FINANCIAL INSTRUMENTS: A derivative financial instrument in very
general terms refers to a security whose value is "derived" from the value of an
underlying asset, reference rate, or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the Fund's foreign currency exposure. All of the Fund's
portfolio holdings, including derivative instruments, are marked-to-market each
day with the change in value reflected in unrealized appreciation/depreciation.
Upon disposition, a realized gain or loss is recognized accordingly, except when
exercising a call option contract or taking delivery of a security underlying a
forward contract. In this instance, the recognition of gain or loss is postponed
until the disposal of the security underlying the option or forward contract.
Risks may arise as a result of the potential inability of the counterparties to
meet the terms of their contracts.
Summarized below are the specific types of derivative financial instruments used
by the Fund.
1. FORWARD CURRENCY CONTRACTS: These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The
gain/loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on foreign currency transactions.
F-91
<PAGE>
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
At June 30, 1999, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
VALUE DEPRECIATION
FORWARD CURRENCY CONTRACTS (000) (000)
- -------------------------- -------- -------------
<S> <C> <C>
LONG CONTRACTS:
Australian Dollar, 14,033,089 expiring
7/1/99................................ $ 8,809 $(444)
British Pound, 3,751,000 expiring
8/12/99............................... 6,070 151
Japanese Yen, 172,092,000 expiring
8/24/99............................... 1,401 (34)
Swedish Krona, 2,236,649 expiring
7/6/99................................ 263 (1)
------- -----
$16,543 (328)
======= =====
SHORT CONTRACTS:
Australian Dollar, 14,033,103 expiring
7/1/99................................ $ 9,253 165
British Pound, 3,751,000 expiring
8/12/99............................... 5,919 (187)
Euro, 21,158,750 expiring
7/16/99-9/10/99....................... 21,942 (285)
Japanese Yen, 2,262,897,090 expiring
8/24/99-9/16/99....................... 18,907 (347)
------- -----
$56,021 (654)
======= =====
$(982)
=====
</TABLE>
2. FUTURES CONTRACTS: A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures of equity indices and typically closes the
contract prior to the delivery date.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash and/or securities with a value equal to its
obligation under the futures contracts. During the period the futures contract
is open, payments are received from or made to the broker based upon changes in
the value of the contract (the variation margin). The potential risk of loss
associated with a futures contract in excess of the variation margin is
reflected on the Statement of Assets and Liabilities. The cost of securities
acquired through delivery under a contract is adjusted by the unrealized gain or
loss on the contract.
Transactions in futures contracts for the year ended June 30, 1999, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS
---------
<S> <C>
Outstanding at June 30, 1998......................... 486
Futures Opened....................................... 6,574
Futures Closed....................................... (6,545)
------
Outstanding at June 30, 1999......................... 515
======
</TABLE>
The futures contracts outstanding as of June 30, 1999, and the descriptions and
the unrealized appreciation/ depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
DEPRECIATION
CONTRACTS (000)
--------- -------------
<S> <C> <C>
LONG CONTRACTS:
CAC 40 Index--September 1999 (Current
notional value $4,554 per
contract)............................ 291 $ 152
DAX Index--September 1999 (Current
notional value $5,389 per
contract)............................ 34 116
MIB 30 Index--September 1999 (Current
notional value $34,993 per
contract)............................ 34 (65)
SHORT CONTRACTS:
TOPIX Index--September 1999 (Current
notional value $1,407 per
contract)............................ 156 1,004
--- ------
515 $1,207
=== ======
</TABLE>
E. PLAN OF REORGANIZATION: On June 12, 1998, the Global Equity Allocation Fund
acquired all of the assets and liabilities of the Van Kampen American Capital
Global Equity Fund (the "VK Fund"), through a tax-free reorganization approved
by the VK Fund shareholders on June 12, 1998. Included in these net assets were
cumulative book and tax differences resulting in re-classifications of
undistributed capital gains of $(3,301,076), undistributed net investment income
of $3,342,357, and paid in capital of $(41,281).
F-92
<PAGE>
VAN KAMPEN GLOBAL FIXED INCOME FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Global Fixed Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Global Fixed Income Fund
(the "Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the
results of its operations, the changes in its net assets and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-93
<PAGE>
VAN KAMPEN GLOBAL FIXED INCOME FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<C> <S> <C>
- ---------------------------------------------------------------------------
FIXED INCOME SECURITIES (95.0%)
AUSTRALIAN DOLLAR (1.7%)
U.S. GOVERNMENT & AGENCY OBLIGATIONS--GLOBAL
$ 50 Federal National Mortgage Association 6.50%,
7/10/02........................................ $ 34
60 Federal National Mortgage Association 6.375%,
8/15/07........................................ 39
AUD 50 Government of Australia 10.00%, 10/15/02......... 37
------
110
------
BRITISH POUND (7.4%)
GOVERNMENT BOND
GBP 250 United Kingdom Treasury Gilt 8.50%, 7/16/07...... 474
------
CANADIAN DOLLAR (3.9%)
GOVERNMENT BOND
CAD 320 Government of Canada 8.75%, 12/1/05.............. 255
------
DANISH KRONE (7.0%)
GOVERNMENT BONDS
DKK 1,800 Kingdom of Denmark 8.00%, 5/15/03................ 284
1,000 Kingdom of Denmark 8.00%, 3/15/06................ 164
------
448
------
EURO (34.1%)
GOVERNMENT BONDS
EUR 100 Buoni Poliennali Del Tesoro 9.50%, 2/1/06........ 133
50 Deutsche Ausgleichsbank 4.00%, 7/4/09............ 48
610 Deutschland Republic 8.375%, 5/21/01............. 688
200 Deutschland Republic 6.50%, 10/14/05............. 232
180 Deutschland Republic 6.25%, 1/4/24............... 206
100 Government of France 4.50%, 7/12/02.............. 106
200 Government of France 6.00%, 10/25/25............. 222
200 Government of Spain 5.15%, 7/30/09............... 212
200 Government of The Netherlands 8.25%, 2/15/02..... 231
100 Kingdom of Belgium 9.20%, 6/28/10................ 118
------
2,196
------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<C> <S> <C>
- ---------------------------------------------------------------------------
JAPANESE YEN (10.5%)
GOVERNMENT BOND (5.9%)
JPY 50,000 Government of Japan 0.90%, 12/22/08.............. $ 378
------
EUROBOND (4.6%)
30,000 IBRD 4.75%, 12/20/04............................. 295
------
TOTAL JAPANESE YEN............................................... 673
------
SWEDISH KRONA (4.5%)
GOVERNMENT BONDS
SEK 1,000 Swedish Government 13.00%, 6/15/01............... 137
1,200 Swedish Government 6.00%, 2/9/05................. 151
------
288
------
UNITED STATES DOLLAR (25.9%)
CORPORATE BOND (0.7%)
$ (a)50 Monsanto Co. 6.60%, 12/1/28...................... 44
------
U.S. TREASURY BONDS (12.7%)
300 8.125%, 8/15/19.................................. 362
460 6.25%, 8/15/23................................... 460
------
822
------
U.S. TREASURY NOTES (12.5%)
440 6.25%, 10/31/01.................................. 446
350 6.25%, 2/15/07................................... 357
------
803
------
TOTAL UNITED STATES DOLLAR....................................... 1,669
------
TOTAL LONG-TERM INVESTMENTS (95.0%) (COST $6,479).................. 6,113
------
SHORT-TERM INVESTMENT (4.6%)
REPURCHASE AGREEMENT (4.6%)
$ 294 Chase Securities, Inc., 4.55%, dated 6/30/99,
due 7/1/99, to be repurchased at $294,
collateralized by $275 U.S. Treasury Bonds,
7.25%, due 5/15/16, valued at $306
(COST $294).................................... 294
------
TOTAL INVESTMENTS (99.6%) (COST $6,773)............................ 6,407
OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%)....................... 24
------
NET ASSETS (100%).................................................. $6,431
======
</TABLE>
- ---------------
(a) 144A Security--Certain conditions for public sale may exist.
The accompanying notes are an integral part of the financial statements.
F-94
<PAGE>
VAN KAMPEN GLOBAL FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- ------------------------------------------------------------------------
ASSETS:
Investments at Value (Cost $6,773)........................ $6,407
Receivable for:
Interest................................................ 109
Fund Shares Sold........................................ 12
Net Unrealized Gain on Foreign Currency Contracts......... 7
Foreign Witholding Tax Reclaim............................ 3
------
Total Assets............................................ 6,538
------
LIABILITIES:
Payable for:
Professional Fees....................................... 25
Dividends Declared...................................... 21
Fund Shares Redeemed.................................... 16
Directors' Fees and Expenses............................ 12
Shareholder Reporting Expenses.......................... 8
Distribution Fees....................................... 6
Bank Overdraft.......................................... 5
Custody Fees............................................ 4
Transfer Agent Fees..................................... 3
Investment Advisory Fees................................ 3
Administrative Fees..................................... 2
Other..................................................... 2
------
Total Liabilities..................................... 107
------
NET ASSETS.................................................. $6,431
======
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 1
Paid in Capital in Excess of Par.......................... 6,777
Accumulated Net Realized Gain............................. 93
Distributions in Excess of Net Investment Income.......... (78)
Net Unrealized Depreciation on Investments and Foreign
Currency Translations................................... (362)
------
NET ASSETS.................................................. $6,431
======
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $3,391,538 and 357,818 Shares
Outstanding)............................................ $ 9.48
======
Maximum Sales Charge...................................... 4.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100/ (100 - maximum sales charge)).............. $ 9.95
======
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $1,556,467 and 165,575 Shares Outstanding)*... $ 9.40
======
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $1,483,381 and 158,021 Shares Outstanding)*... $ 9.39
======
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-95
<PAGE>
VAN KAMPEN GLOBAL FIXED INCOME FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -----------------------------------------------------------------------
INVESTMENT INCOME:
Interest.................................................. $ 369
Less Foreign Taxes Withheld............................... (3)
-----
Total Income............................................. 366
-----
EXPENSES:
Investment Advisory Fees.................................. 62
Distribution Fees (Attributed to Classes A, B, and C of
$11, $17, and $18, respectively)........................ 46
Professional Fees......................................... 34
Shareholder Reports....................................... 30
Filing and Registration Fees.............................. 28
Administrative Fees....................................... 26
Custodian Fees............................................ 14
Transfer Agent Fees....................................... 13
Directors' Fees and Expenses.............................. 9
Interest Expense.......................................... 2
Other..................................................... 5
-----
Total Expenses........................................... 269
Less Expense Reductions.................................. (122)
-----
Net Expenses............................................. 147
-----
Net Investment Income/Loss.................................. 219
-----
NET REALIZED GAIN/LOSS ON:
Investments............................................... 392
Foreign Currency Transactions............................. 59
-----
Net Realized Gain/Loss................................... 451
-----
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... 60
-----
End of the Period:
Investments.............................................. (366)
Foreign Currency Translations............................ 4
-----
(362)
-----
Net Unrealized Appreciation/Depreciation During the
Period.................................................... (422)
-----
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. 29
-----
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ 248
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-96
<PAGE>
VAN KAMPEN GLOBAL FIXED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ 219 $ 336
Net Realized Gain/Loss.................................... 451 (59)
Net Unrealized Appreciation/Depreciation.................. (422) 178
------------- -------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 248 455
------------- -------------
DISTRIBUTIONS:
Net Investment Income:
Class A................................................... (124) (219)
Class B................................................... (38) (49)
Class C................................................... (41) (68)
In Excess of Net Investment Income:
Class A................................................... (47) (4)
Class B................................................... (15) (1)
Class C................................................... (15) (1)
------------- -------------
(280) (342)
------------- -------------
Net Realized Gain:
Class A................................................... (144) (30)
Class B................................................... (50) (8)
Class C................................................... (52) (11)
------------- -------------
(246) (49)
------------- -------------
Net Decrease in Net Assets Resulting from Distributions... (526) (391)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 5,081 1,701
Distributions Reinvested.................................. 449 329
Redeemed.................................................. (6,547) (4,936)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... (1,017) (2,906)
------------- -------------
Total Increase/Decrease in Net Assets..................... (1,295) (2,842)
NET ASSETS--Beginning of Period............................. 7,726 10,568
------------- -------------
NET ASSETS--End of Period (Including distributions in excess
of net investment income of $(78) and $(150),
respectively)............................................. $ 6,431 $ 7,726
============= =============
- --------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) Class A:
----------
Shares:
Subscribed............................................. 407 72
Distributions Reinvested............................... 28 22
Redeemed............................................... (517) (298)
------------- -------------
Net Increase/Decrease in Class A Shares Outstanding...... (82) (204)
============= =============
Dollars:
Subscribed............................................. $ 4,142 $ 714
Distributions Reinvested............................... 285 226
Redeemed............................................... (5,371) (2,981)
------------- -------------
Net Increase/Decrease.................................... $ (944) $ (2,041)
============= =============
Ending Paid in Capital................................... $ 3,508 $ 4,452
============= =============
Class B:
----------
Shares:
Subscribed............................................. 69 58
Distributions Reinvested............................... 7 4
Redeemed............................................... (53) (92)
------------- -------------
Net Increase/Decrease in Class B Shares Outstanding...... 23 (30)
============= =============
Dollars:
Subscribed............................................. $ 707 $ 572
Distributions Reinvested............................... 74 42
Redeemed............................................... (540) (909)
------------- -------------
Net Increase/Decrease.................................... $ 241 $ (295)
============= =============
Ending Paid in Capital................................... $ 1,675 $ 1,434
============= =============
Class C:
----------
Shares:
Subscribed............................................. 24 42
Distributions Reinvested............................... 8 6
Redeemed............................................... (64) (105)
------------- -------------
Net Increase/Decrease in Class C Shares Outstanding...... (32) (57)
============= =============
Dollars:
Subscribed............................................. $ 232 $ 415
Distributions Reinvested............................... 90 61
Redeemed............................................... (636) (1,046)
------------- -------------
Net Increase/Decrease.................................... $ (314) $ (570)
============= =============
Ending Paid in Capital................................... $ 1,595 $ 1,909
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-97
<PAGE>
VAN KAMPEN GLOBAL FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
---------------------------------------------- ----------------------------------------------
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
---------------------------------------------- --------------------------- AUGUST 1, 1995+
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995 1999# 1998# 1997 TO JUNE 30, 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $10.022 $ 9.95 $ 9.94 $10.23 $ 9.53 $ 9.971 $ 9.91 $ 9.91 $ 10.24
------- -------- ------ ------ ------- ------- -------- ------ ---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss...... 0.311 0.39 0.44 0.53 0.56 0.229 0.32 0.41 0.64
Net Realized and Unrealized
Gain/Loss..................... (0.181) 0.13 (0.02) (0.01) 0.50 (0.186) 0.13 (0.07) (0.26)
------- -------- ------ ------ ------- ------- -------- ------ ---------------
Total From Investment
Operations.................... 0.130 0.52 0.42 0.52 1.06 0.043 0.45 0.34 0.38
------- -------- ------ ------ ------- ------- -------- ------ ---------------
DISTRIBUTIONS
Net Investment Income........... (0.278) (0.39) (0.35) (0.79) (0.36) (0.234) (0.33) (0.29) (0.69)
In Excess of Net Investment
Income........................ (0.106) (0.01) (0.06) (0.02) -- (0.090) (0.01) (0.05) (0.02)
Net Realized Gain............... (0.290) (0.05) -- -- -- (0.290) (0.05) -- --
------- -------- ------ ------ ------- ------- -------- ------ ---------------
Total Distributions............. (0.674) (0.45) (0.41) (0.81) (0.36) (0.614) (0.39) (0.34) (0.71)
------- -------- ------ ------ ------- ------- -------- ------ ---------------
NET ASSET VALUE, END OF PERIOD.... $ 9.478 $ 10.02 $ 9.95 $ 9.94 $ 10.23 $ 9.400 $ 9.97 $ 9.91 $ 9.91
======= ======== ====== ====== ======= ======= ======== ====== ===============
TOTAL RETURN (1).................. 0.95% 5.36% 4.27% 5.20% 11.41% 0.05% 4.65% 3.48% 3.76%*
======= ======== ====== ====== ======= ======= ======== ====== ===============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's)......................... $ 3,392 $ 4,413 $6,407 $7,432 $11,092 $ 1,556 $ 1,425 $1,716 $ 1,440
Ratio of Expenses to Average Net
Assets.......................... 1.47% 1.45% 1.45% 1.45% 1.45% 2.23% 2.20% 2.20% 2.20%
Ratio of Net Investment
Income/Loss to Average Net
Assets.......................... 3.03% 3.94% 4.40% 5.02% 5.84% 2.21% 3.21% 3.65% 3.38%
Portfolio Turnover Rate........... 143% 78% 170% 223% 169% 143% 78% 170% 223%*
- -----------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss........ $ 0.15 $ 0.15 $ 0.12 $ 0.07 $ 0.07 $ 0.15 $ 0.15 $ 0.13 $ 0.12
Ratios Before Expense Limitation:
Expenses to Average Net
Assets........................ 2.97% 3.00% 2.57% 2.16% 2.22% 3.78% 3.75% 3.37% 3.57%
Net Investment Income to Average
Net Assets.................... 1.54% 2.42% 3.25% 4.31% 5.07% 0.71% 1.65% 2.45% 2.01%
Ratio of Expenses to Average Net
Assets excluding country tax
expense and interest expense.... 1.45% 1.45% 1.45% 1.45% 1.45% 2.20% 2.20% 2.20% 2.20%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.962 $ 9.90 $ 9.90 $10.20 $ 9.54
------- -------- ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................................ 0.230 0.32 0.39 0.37 0.49
Net Realized and Unrealized Gain/Loss..................... (0.191) 0.13 (0.05) 0.08 0.47
------- -------- ------ ------ ------
Total From Investment Operations.......................... 0.039 0.45 0.34 0.45 0.96
------- -------- ------ ------ ------
DISTRIBUTIONS
Net Investment Income..................................... (0.234) (0.33) (0.29) (0.73) (0.30)
In Excess of Net Investment Income........................ (0.090) (0.01) (0.05) (0.02) --
Net Realized Gain......................................... (0.290) (0.05) -- -- --
------- -------- ------ ------ ------
Total Distributions....................................... (0.614) (0.39) (0.34) (0.75) (0.30)
------- -------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.387 $ 9.96 $ 9.90 $ 9.90 $10.20
======= ======== ====== ====== ======
TOTAL RETURN (1)............................................ 0.05% 4.65% 3.48% 4.47% 10.24%
======= ======== ====== ====== ======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $ 1,483 $ 1,888 $2,445 $2,844 $5,965
Ratio of Expenses to Average Net Assets..................... 2.23% 2.20% 2.20% 2.20% 2.20%
Ratio of Net Investment Income/Loss to Average Net Assets... 2.22% 3.21% 3.65% 4.35% 5.09%
Portfolio Turnover Rate..................................... 143% 78% 170% 223% 169%
- ---------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment Income/Loss........... $ 0.15 $ 0.15 $ 0.12 $ 0.06 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 3.74% 3.75% 3.35% 2.87% 2.97%
Net Investment Income/Loss to Average Net Assets.......... 0.75% 1.67% 2.48% 3.68% 4.32%
Ratio of Net Expenses to Average Net Assets excluding
country tax expense and interest expense.................. 2.20% 2.20% 2.20% 2.20% 2.20%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Non-Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-98
<PAGE>
VAN KAMPEN GLOBAL FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Global Fixed Income Fund (the "Fund") is organized as a separate
non-diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation,
which is registered as an open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective
seeks to produce an attractive real rate of return by investing in fixed-income
securities of U.S. and foreign issuers denominated in U.S. dollars and in other
currencies. The Fund commenced operations on January 4, 1993.
The Fund currently offers three classes of shares, Class A, Class B, and
Class C shares. Class A shares are sold with a front-end sales charge of up to
4.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge of 1.00% imposed in the event
of certain redemptions within one year of the purchase. Class B and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
----------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First..................................... 4.00% 1.00%
Second.................................... 4.00% None
Third..................................... 3.00% None
Fourth.................................... 2.50% None
Fifth..................................... 1.50% None
Thereafter................................ None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights. The Fund began offering the current Class B shares on August 1,
1995. Class B shares held prior to May 1, 1995 were renamed Class C shares.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the current bid and asked prices obtained from reputable
brokers. Bonds and other fixed income securities may be valued according to the
broadest and most representative market. In addition, bonds and other fixed
income securities may be valued on the basis of prices provided by a pricing
service which takes into account institutional size trading in similar groups of
securities. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. All other
securities and assets for which market values are not readily available are
valued at fair value as determined in good faith by the Board of Directors,
although the actual calculations may be done by others.
2. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
3. INCOME AND EXPENSES: Interest income is recognized on the accrual basis
except where collection is in doubt. Discounts and premiums on securities
purchased are amortized according to the effective yield method over their
respective lives. Income, expenses (other than class specific expenses), and
realized and unrealized gains or losses are allocated to each class of shares
based upon their relative net assets. Distributions from the Fund are recorded
on the ex-distribution date.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices. Purchases and sales of portfolio securities are translated at the
rate of exchange prevailing when such securities were purchased or sold. Income
and expenses are translated at rates prevailing when accrued. Realized and
unrealized gains and losses on securities are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and losses on foreign currency includes the net
realized amount
F-99
<PAGE>
VAN KAMPEN GLOBAL FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
from the sale of the currency and the amount realized between trade date and
settlement date on security and income transactions. However, the foreign
currency portion of gains and losses realized on sales and maturities of foreign
denominated debt securities is treated as ordinary income for U.S. Federal
income tax purposes.
5. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such
taxes are generally based on income earned or gains realized or repatriated.
Taxes are accrued and applied to net investment income, net realized capital
gains, and net unrealized appreciation, as applicable, as the income is earned
or capital gains are recorded.
Net currency losses incurred after October 31 and within the taxable year are
deemed to arise on the first business day of the Fund's next taxable year. For
the period from November 1, 1998 to June 30, 1999 the Fund incurred and elected
to defer until July 1, 1999, for U.S. Federal income tax purposes, net currency
losses of approximately $27,000.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- ------ -------- -------- -------------
<S> <C> <C> <C>
$6,775..
$66 $(434) $(368)
</TABLE>
6. DISTRIBUTION OF INCOME AND GAINS: The amount and the character of income and
capital gain distributions to be paid by the Fund are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing book and
tax treatment for foreign currency transactions, net operating losses, foreign
taxes on net realized gains, and gains on certain securities of corporations
designated as "passive foreign investment companies."
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, and paid in capital in excess of par. For
the year ended June 30, 1999, approximately $133,000 has been reclassified from
accumulated net realized gain and posted to distributions in excess of net
investment income.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.), Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser") and Miller Anderson & Sherrerd LLP, wholly
owned subsidiaries of Morgan Stanley Dean Witter & Co., provide the Fund with
investment advisory services at a fee paid monthly and calculated at the annual
rates based on average daily net assets as indicated below. The Adviser has
agreed to reduce advisory fees payable to it and to reimburse the Fund, if
necessary, if the annual operating expenses, as defined, expressed as a
percentage of average daily net assets, exceed the maximum ratios indicated as
follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- ------------ -------------- ---------------
<S> <C> <C>
0.75%
1.45% 2.20%
</TABLE>
Van Kampen Investment Advisory Corp. (the "Administrator") also provides the
Fund with administrative services pursuant to an administrative agreement for a
monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the portfolio, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $12,010 for Class A shares and deferred sales charges of $472,
$10,212, and $731 for Class A shares, Class B shares, and Class C shares,
respectively.
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Trust Company ("MSTC"), a former affiliate of the
Subadvisers. Through
F-100
<PAGE>
VAN KAMPEN GLOBAL FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
September 30, 1998, the Fund incurred MSTC fees of approximately $1,000. On
October 1, 1998, the Chase Manhattan Bank purchased MSTC.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $8,110,000 and sales of approximately $8,406,000 of
investment securities other than long-term U.S. government securities and
short-term investments. Purchases and sales of long-term U.S. government
securities for the year ended June 30, 1999 totaled approximately $2,528,000 and
$3,205,000, respectively.
D. DERIVATIVE FINANCIAL INSTRUMENTS: A derivative financial instrument in very
general terms refers to a security whose value is "derived" from the value of an
underlying asset, reference rate or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, foreign currency
exposure, maturity, and duration. All of the Fund's portfolio holdings,
including derivative instruments, are marked-to-market each day with the change
in value reflected in unrealized appreciation/depreciation. Upon disposition, a
realized gain or loss is recognized accordingly, except when exercising a call
option contract or taking delivery of a security underlying a forward contract.
In this instance, the recognition of gain or loss is postponed until the
disposal of the security underlying the option or forward contract. Risks may
arise as a result of the potential inability of the counterparties to meet the
terms of their contracts.
Summarized below are the specific types of derivative financial instruments used
by the Fund.
1. FORWARD CURRENCY CONTRACTS: These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on foreign currency transactions.
At June 30, 1999, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
VALUE DEPRECIATION
FORWARD CURRENCY CONTRACTS (000) (000)
- -------------------------- -------- -------------
<S> <C> <C>
LONG CONTRACTS:
Australian Dollar,
100,000 expiring 9/16/99........... $ 66 $ --
---- ----
SHORT CONTRACTS:
Australian Dollar,
100,000 expiring 9/16/99........... $ 66 $ --
Euro,
200,000 expiring 7/12/99........... 207 7
---- ----
$273 $ 7
==== ====
$ 7
====
</TABLE>
F-101
<PAGE>
VAN KAMPEN TAX MANAGED GLOBAL FRANCHISE FUND
(FORMERLY KNOWN AS VAN KAMPEN GLOBAL FRANCHISE FUND)
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Global Franchise Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Global Franchise Fund
(the "Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the
results of its operations, the changes in its net assets and the financial
highlights for the period September 25, 1998 (commencement of operations)
through June 30, 1999, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at June 30, 1999 by correspondence with the
custodian, provides a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-102
<PAGE>
VAN KAMPEN TAX MANAGED GLOBAL FRANCHISE FUND
(FORMERLY KNOWN AS VAN KAMPEN GLOBAL FRANCHISE FUND)
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------------------
COMMON STOCKS (100.3%)
CANADA (4.0%)
Torstar Corp. 'B'.......................... 8,230 $ 92
------
FINLAND (4.4%)
Kone Corp. 'B'............................. 615 77
(a)Rapala Normark Corp..................... 3,350 24
------
101
------
FRANCE (9.9%)
Groupe Danone RFD.......................... 292 76
Pernod-Ricard.............................. 1,315 88
Societe Television Francaise 1............. 267 62
------
226
------
ITALY (4.8%)
Mediaset S.p.A............................. 7,050 63
Seat Pagine Gialle S.p.A................... 33,900 46
------
109
------
NETHERLANDS (4.7%)
Benckiser N.V. 'B'......................... 2,020 108
------
SPAIN (2.3%)
Zardoya-Otis S.A........................... 2,079 52
------
SWITZERLAND (13.6%)
Cie Financiere Richemont AG 'A'............ 96 185
Lindt & Spruengli AG....................... 20 51
Nestle S.A. (Registered)................... 41 74
------
310
------
UNITED KINGDOM (33.4%)
Aegis Group plc............................ 38,150 84
Allied Domecq plc.......................... 10,050 97
Burmah Castrol plc......................... 2,187 42
Capital Radio plc.......................... 5,890 78
Great Universal Stores plc................. 5,250 58
Imperial Tobacco Group plc................. 9,260 101
Reckitt & Colman plc....................... 9,324 97
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Scottish Media Group plc................... 3,430 $ 47
Time Products plc.......................... 6,800 11
WPP Group plc.............................. 17,560 149
------
764
------
UNITED STATES (23.2%)
Bestfoods.................................. 1,900 94
Brown-Forman Corp. 'B'..................... 1,670 109
New York Times Co. 'A'..................... 3,865 142
Philip Morris Cos., Inc.................... 1,978 80
Snap-on, Inc............................... 1,260 46
WD-40 Co................................... 2,330 58
------
529
------
TOTAL LONG-TERM INVESTMENTS (100.3%) (COST $2,057)........ 2,291
------
FOREIGN CURRENCY (0.1%) (COST $2)......................... 2
------
TOTAL INVESTMENTS (100.4%) (COST $2,059).................. 2,293
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.4%)............. (10)
------
NET ASSETS (100%)......................................... $2,283
======
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
RFD -- Ranked for Dividend
</TABLE>
- ----------------------------------------------------------------
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------- ------ ----------
<S> <C> <C>
Consumer Goods...................... $1,170 51.2%
Services............................ 846 37.0
Capital Equipment................... 175 7.7
Energy.............................. 100 4.4
------ -----
$2,291 100.3%
====== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-103
<PAGE>
VAN KAMPEN TAX MANAGED GLOBAL FRANCHISE FUND
(FORMERLY KNOWN AS VAN KAMPEN GLOBAL FRANCHISE FUND)
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- ------------------------------------------------------------------------
ASSETS:
Investments at Value (Cost $2,057)........................ $2,291
Foreign Currency (Cost $2)................................ 2
Cash...................................................... 66
Receivable for:
Dividends............................................... 8
Foreign Witholding Tax Reclaim.......................... 1
Net Unrealized Gain on Foreign Currency Exchange
Contracts............................................... 18
Receivable from Investment Adviser........................ 15
------
Total Assets.......................................... 2,401
------
LIABILITIES:
Payable for:
Professional Fees....................................... 48
Filing and Registration Fees............................ 34
Shareholder Reporting Expenses.......................... 14
Directors' Fees and Expenses............................ 8
Custody Fees............................................ 5
Transfer Agent Fees..................................... 5
Distribution Fees....................................... 2
Administrative Fees..................................... 1
Other..................................................... 1
------
Total Liabilities..................................... 118
------
NET ASSETS.................................................. $2,283
======
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ --
Paid in Capital in Excess of Par.......................... 1,953
Net Unrealized Appreciation on Investments and Foreign
Currency Translations................................... 253
Accumulated Net Investment Income......................... 48
Accumulated Net Realized Gain............................. 29
------
NET ASSETS.................................................. $2,283
======
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $1,189,338 and 99,280 Shares
Outstanding)............................................ $11.98
======
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100 / (100 - maximum sales charge))............. $12.71
======
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $614,254 and 51,522 Shares Outstanding)*...... $11.92
======
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $479,666 and 39,914 Shares Outstanding)*...... $12.02
======
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-104
<PAGE>
VAN KAMPEN TAX MANAGED GLOBAL FRANCHISE FUND
(FORMERLY KNOWN AS VAN KAMPEN GLOBAL FRANCHISE FUND)
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
SEPTEMBER 25, 1998* TO JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -----------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 42
Interest.................................................. 4
Less Foreign Taxes Withheld............................... (5)
-----
Total Income............................................ 41
-----
EXPENSES:
Professional Fees......................................... 52
Filing and Registration Fees.............................. 49
Shareholder Reports....................................... 22
Investment Advisory Fees.................................. 12
Custodian Fees............................................ 10
Directors' Fees and Expenses.............................. 8
Distribution Fees (Attributed to Classes A, B, and C of
$2, $3, and $3, respectively)........................... 8
Administrative Fees....................................... 7
Transfer Agent Fees....................................... 7
Other..................................................... 2
-----
Total Expenses............................................ 177
Less Expense Reductions................................... (150)
-----
Net Expenses.............................................. 27
-----
Net Investment Income/Loss.................................. 14
-----
NET REALIZED GAIN/LOSS ON:
Investments............................................... 29
Foreign Currency Transactions............................. (7)
-----
Net Realized Gain/Loss.................................. 22
-----
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... --
-----
End of the Period:
Investments............................................. 234
Foreign Currency Translations........................... 19
-----
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 253
-----
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. 275
-----
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ 289
=====
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Commencement of operations
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-105
<PAGE>
VAN KAMPEN TAX MANAGED GLOBAL FRANCHISE FUND
(FORMERLY KNOWN AS VAN KAMPEN GLOBAL FRANCHISE FUND)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
SEPTEMBER 25, 1998* TO JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- ------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ 14
Net Realized Gain/Loss.................................... 22
Net Unrealized Appreciation/Depreciation.................. 253
------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 289
------
DISTRIBUTIONS:
Net Investment Income:
Class A................................................... (7)
Class B................................................... (4)
Class C................................................... (5)
------
Net Decrease in Net Assets Resulting from Distributions... (16)
------
CAPITAL SHARES TRANSACTIONS (1):
Subscribed................................................ 1,012
Distributions Reinvested.................................. 3
Redeemed.................................................. (5)
------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... 1,010
------
Total Increase/Decrease in Net Assets..................... 1,283
NET ASSETS--Beginning of Period............................. 1,000
------
NET ASSETS--End of Period (Including accumulated net
investment income of $48 at June 30, 1999)................ $2,283
======
- ------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (000):
(1) CLASS A:
Shares:
Subscribed (Initial Shares of 40) 99
Distributions Reinvested............................... --
Redeemed............................................... --
------
Net Increase/Decrease in Class A Shares Outstanding...... 99
======
Dollars:
Subscribed............................................. $ 667
Distributions Reinvested............................... 2
Redeemed............................................... (2)
------
Net Increase/Decrease.................................... $ 667
======
Beginning Paid in Capital................................ $ 400
======
Ending Paid in Capital................................... $1,067+
======
CLASS B:
Shares:
Subscribed (Initial Shares of 30)...................... 52
Distributions Reinvested............................... --
Redeemed............................................... --
------
Net Increase/Decrease in Class B Shares Outstanding...... 52
======
Dollars:
Subscribed............................................. $ 242
Distributions Reinvested............................... 1
Redeemed............................................... --
------
Net Increase/Decrease.................................... $ 243
======
Beginning Paid in Capital................................ $ 300
======
Ending Paid in Capital................................... $ 543+
======
CLASS C:
Shares:
Subscribed (Initial Shares of 30)...................... 40
Distributions Reinvested............................... --
Redeemed............................................... --
------
Net Increase/Decrease in Class C Shares Outstanding...... 40
======
Dollars:
Subscribed............................................. $ 103
Distributions Reinvested............................... --
Redeemed............................................... (3)
------
Net Increase/Decrease.................................... $ 100
======
Beginning Paid in Capital................................ $ 300
======
Ending Paid in Capital................................... $ 400+
======
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Commencement of operations
+ Ending Paid in Capital amounts do not reflect permanent book
to tax differences.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-106
<PAGE>
VAN KAMPEN TAX MANAGED GLOBAL FRANCHISE FUND
(FORMERLY KNOWN AS VAN KAMPEN GLOBAL FRANCHISE FUND)
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------- ---------------------- ----------------------
SEPTEMBER 25, 1998* TO SEPTEMBER 25, 1998* TO SEPTEMBER 25, 1998* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1999# JUNE 30, 1999# JUNE 30, 1999#
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 10.000 $ 10.000 $ 10.000
--------------------- --------------------- ---------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................. 0.136 0.066 0.059
Net Realized and Unrealized Gain/Loss...... 1.969 1.962 2.065
--------------------- --------------------- ---------------------
Total From Investment Operations........... 2.105 2.028 2.124
--------------------- --------------------- ---------------------
DISTRIBUTIONS
Net Investment Income...................... (0.125) (0.106) (0.106)
--------------------- --------------------- ---------------------
NET ASSET VALUE, END OF PERIOD............... $ 11.980 $ 11.922 $ 12.018
===================== ===================== =====================
TOTAL RETURN (1)............................. 21.22%** 20.40%** 21.40%**
===================== ===================== =====================
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............ $ 1,189 $ 614 $ 480
Ratio of Expenses to Average Net Assets...... 1.80% 2.55% 2.55%
Ratio of Net Investment Income/Loss to
Average Net Assets......................... 1.57% 0.77% 0.69%
Portfolio Turnover Rate...................... 9%** 9%** 9%**
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During
the Period
Per Share Benefit to Net Investment
Income/Loss.............................. $ 1.02 $ 1.02 $ 1.16
Ratios Before Expense Limitation:
Expenses to Average Net Assets............. 13.55% 14.45% 16.07%
Net Investment Income/Loss to Average Net
Assets................................... (10.17)% (11.12)% (12.83)%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
** Non-Annualized
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-107
<PAGE>
VAN KAMPEN TAX MANAGED GLOBAL FRANCHISE FUND
(FORMERLY KNOWN AS VAN KAMPEN GLOBAL FRANCHISE FUND)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Global Franchise Fund (the "Fund") is organized as a separate
diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation, which
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective seeks long-term
capital appreciation. The Fund commenced operations on September 25, 1998.
The Fund currently offers three classes of shares, Class A, Class B, and
Class C shares. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge of 1.00% imposed in the event
of certain redemptions within one year of the purchase. Class B and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
-----------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First..................................... 5.00% 1.00%
Second.................................... 4.00% None
Third..................................... 3.00% None
Fourth.................................... 2.50% None
Fifth..................................... 1.50% None
Thereafter................................ None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the current bid and asked prices obtained from reputable
brokers. Debt securities purchased with remaining maturities of 60 days or less
are valued at amortized cost, if it approximates market value. All other
securities and assets for which market values are not readily available are
valued at fair value as determined in good faith by the Board of Directors,
although the actual calculations may be done by others.
2. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date, net
of applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on an accrual basis except where
collection is in doubt. Income, expenses (other than class specific expenses),
and realized and unrealized gains or losses are allocated to each class of
shares based upon their relative net assets. Distributions from the Fund are
recorded on the ex-distribution date.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices. Purchases and sales of portfolio securities are translated at the
rate of exchange prevailing when such securities were purchased or sold. Income
and expenses are translated at rates prevailing when accrued. Realized and
unrealized gains and losses on securities are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and losses on foreign currency includes the net
realized amount from the sale of the currency and the amount realized between
trade date and settlement date on security and income transactions. However, the
foreign currency portion
F-108
<PAGE>
VAN KAMPEN TAX MANAGED GLOBAL FRANCHISE FUND
(FORMERLY KNOWN AS VAN KAMPEN GLOBAL FRANCHISE FUND)
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
of gains and losses realized on sales and maturities of foreign denominated debt
securities is treated as ordinary income for U.S. Federal income tax purposes.
5. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such
taxes are generally based on income earned or gains realized or repatriated.
Taxes are accrued and applied to net investment income, net realized capital
gains, and net unrealized appreciation, as applicable, as the income is earned
or capital gains are recorded.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- --------------------- -------- -------- -------------
<S> <C> <C> <C>
$2,057 $301 $(67) $234
</TABLE>
6. DISTRIBUTION OF INCOME AND GAINS: The amount and the character of income and
capital gain distributions to be paid by the Fund are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, and paid in capital in excess of par. For
the year ended June 30, 1999, approximately $57,000 has been reclassified from
paid in capital in excess of par with approximately $50,000 posted to
accumulated net investment income and approximately $7,000 posted to accumulated
net realized gain.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., provide the Fund with investment advisory services at a fee
paid monthly and calculated at the annual rates based on average daily net
assets as indicated below. The Adviser has agreed to reduce advisory fees
payable to it and to reimburse the Fund, if necessary, if the annual operating
expenses, as defined, expressed as a percentage of average daily net assets,
exceed the maximum ratios indicated as follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- --------------------- -------------- --------------
<S> <C> <C>
1.00% 1.80% 2.55%
</TABLE>
At June 30, 1999, Van Kampen Funds, Inc. owned 40%, 58%, and 75% of the shares
outstanding of each Class A, B, and C shares in the Fund.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides the
Fund with administrative services pursuant to an administrative agreement for a
monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the portfolio, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the period ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $12,307 for Class A shares and a deferred sales charge of $30 for
Class C shares.
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Trust Company ("MSTC"), a former affiliate of the
Subadvisers. Through September 30, 1998, the Fund incurred MSTC fees of $394. On
October 1, 1998, the Chase Manhattan Bank purchased MSTC.
F-109
<PAGE>
VAN KAMPEN TAX MANAGED GLOBAL FRANCHISE FUND
(FORMERLY KNOWN AS VAN KAMPEN GLOBAL FRANCHISE FUND)
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
During the year ended June 30, 1999, the Fund incurred $314 as brokerage
commissions with Morgan Stanley & Co. Incorporated, an affiliated broker/dealer.
C. INVESTMENT TRANSACTIONS: For the period ended June 30, 1999, the Fund made
purchases of approximately $2,165,000 and sales of approximately $131,000 of
investment securities other than long-term U.S. government securities and short-
term investments. There were no purchases or sales of long-term U.S. government
securities.
D. DERIVATIVE FINANCIAL INSTRUMENTS: A derivative financial instrument in very
general terms refers to a security whose value is "derived" from the value of an
underlying asset, reference rate or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's foreign currency exposure. All of the
Fund's portfolio holdings, including derivative instruments, are
marked-to-market each day with the change in value reflected in unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when exercising a call option contract or taking
delivery of a security underlying a forward contract. In this instance, the
recognition of gain or loss is postponed until the disposal of the security
underlying the option or forward contract. Risks may arise as a result of the
potential inability of the counterparties to meet the terms of their contracts.
Summarized below are the specific types of derivative financial instruments used
by the Fund.
1. FORWARD CURRENCY CONTRACTS: These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on foreign currency transactions.
At June 30, 1999, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
VALUE DEPRECIATION
FORWARD CURRENCY CONTRACTS (000) (000)
- -------------------------- -------- -------------
<S> <C> <C>
SHORT CONTRACTS:
Euro,
100,000 expiring 11/10/99............. $104 $ 5
British Pounds,
235,000 expiring 11/10/99............. 371 13
---- ---
$475 $18
==== ===
</TABLE>
F-110
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen High Yield & Total Return Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen High Yield & Total
Return Fund (the "Fund", a fund of Van Kampen Series Fund, Inc.) at June 30,
1999, the results of its operations, the changes in its net assets and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-111
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------------
CORPORATE BONDS & NOTES (89.3%)
AEROSPACE & DEFENSE (1.6%)
$ 200 Jet Equipment Trust, Series C-1,
11.79%, 6/15/13..................... $ 248
(b)300 Jet Equipment Trust, Series 1995-D,
11.44%, 11/1/14..................... 369
-------
617
-------
AUTOMOTIVE (1.0%)
(b)405 Hayes Lemmerz International 8.25%,
12/15/08............................ 385
-------
BROADCAST--RADIO & TELEVISION (3.8%)
575 Chancellor Media Corp., Series B,
8.125%, 12/15/07.................... 558
180 Chancellor Media Corp. 9.00%,
10/1/08............................. 182
(b)240 RBS Participacoes S.A. 11.00%,
4/1/07.............................. 161
775 TV Azteca S.A. de CV, Series B,
10.50%, 2/15/07..................... 583
-------
1,484
-------
BUILDING MATERIALS & COMPONENTS (1.7%)
275 American Standard Cos., Inc. 7.375%,
2/1/08.............................. 258
(b)410 Nortek, Inc. 8.875%, 8/1/08........... 404
-------
662
-------
CABLE TELEVISION (3.9%)
200 Adelphia Communications, Series B,
7.50%, 1/15/04...................... 191
125 Adelphia Communications, Series B,
9.875%, 3/1/07...................... 130
165 Adelphia Communications, Series B,
8.375%, 2/1/08...................... 159
255 CSC Holdings, Inc. 9.875%, 5/15/06.... 271
125 CSC Holdings, Inc. 7.25%, 7/15/08..... 118
290 Lenfest Communications, Inc. 8.375%,
11/1/05............................. 307
300 Rogers Cablesystems Ltd., Series B,
10.00%, 3/15/05..................... 323
-------
1,499
-------
CAPITAL GOODS/CONSTRUCTION (1.1%)
460 D.R. Horton, Inc. 8.00%, 2/1/09....... 432
-------
CHEMICALS (3.2%)
600 ISP Holdings, Inc., Series B, 9.00%,
10/15/03............................ 598
EUR (b)400 Huntsman ICI Chemicals 10.125%,
7/1/09.............................. 401
$ (b)250 Lyondell Chemical Co. 9.625%,
5/1/07.............................. 255
-------
1,254
-------
COMPUTERS (0.5%)
(d)300 Wam!Net, Inc., Series B, 0.00%,
3/1/05.............................. 177
-------
CONSTRUCTION & MINING (0.6%)
275 Murrin Murrin Holdings 9.375%,
8/31/07............................. 242
-------
ENERGY (3.3%)
395 CMS Energy 7.50%, 1/15/09............. 370
(d)205 Husky Oil Ltd. 8.90%, 8/15/28......... 197
100 Quezon Power Ltd. 8.86%, 6/15/17...... 81
440 Snyder Oil Corp. 8.75%, 6/15/07....... 433
125 Vintage Petroleum 9.75%, 6/30/09...... 128
50 Vintage Petroleum 8.625%, 2/1/09...... 48
-------
1,257
-------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------
ENVIRONMENTAL CONTROLS (2.2%)
$ 210 Allied Waste of North America 7.875%,
1/1/09............................... $ 195
(d)600 Norcal Waste Systems, Series B, 13.50%,
11/15/05............................. 663
------
858
------
FINANCE (1.0%)
(b,d)180 Fuji JGB Investments LLC, Series A,
9.87%, 12/31/49...................... 157
(b,d)235 SB Treasury Co. LLC 9.40%, 12/29/49.... 229
------
386
------
FOOD (1.7%)
700 Smithfield Foods, Inc. 7.625%,
2/15/08.............................. 637
------
FOOD SERVICE & LODGING (1.9%)
400 Hilton Hotels 7.95%, 4/15/07........... 405
335 Host Marriott Travel Plaza, Series B,
9.50%, 5/15/05....................... 344
------
749
------
FOREST PRODUCTS & PAPER (1.8%)
215 Asia Pulp & Paper Co., Ltd., Series A,
12.00%, 2/15/04...................... 141
140 Pindo Deli Fin Mauritius 10.75%,
10/1/07.............................. 97
305 SD Warren Co., Series B, 12.00%,
12/15/04............................. 325
145 Tembec Industries, Inc. 8.625%,
6/30/09.............................. 144
------
707
------
GAMING & LODGING (6.9%)
515 Harrahs Operating Co., Inc. 7.875%,
12/15/05............................. 500
(b)460 Horseshoe Gaming Holdings 8.652%,
5/15/09.............................. 445
(b)590 International Game Technology 8.375%,
5/15/09.............................. 583
425 Park Place Entertainment 7.875%,
12/15/05............................. 404
405 Station Casinos, Inc. 10.125%,
3/15/06.............................. 418
60 Station Casinos, Inc. 9.75%, 4/15/07... 61
275 Station Casinos, Inc. 8.875%,
12/1/08.............................. 269
------
2,680
------
HEALTH CARE SUPPLIES & SERVICES (7.3%)
130 Columbia/HCA Healthcare, 8.13%, 8/4/03
MTN.................................. 128
650 Columbia/HCA Healthcare, 6.91%,
6/15/05.............................. 601
525 Columbia/HCA Healthcare, 8.85%, 1/1/07
MTN.................................. 528
200 Columbia/HCA Healthcare, 7.00%,
7/1/07............................... 181
275 Columbia/HCA Healthcare, 7.69%,
6/15/25.............................. 228
270 Fresenius Medical Capital Trust II
7.875%, 2/1/08....................... 254
920 Tenet Healthcare Corp. 8.625%,
1/15/07.............................. 899
------
2,819
------
MINING (0.9%)
410 Glencore Nickel Property Ltd. 9.00%,
12/1/14.............................. 353
------
MULTI-INDUSTRY (3.1%)
185 Applied Power, Inc. 8.75%, 4/1/09...... 179
150 Axia, Inc. 10.75%, 7/15/08............. 148
550 Outdoor Systems, Inc., 8.875%,
6/15/07.............................. 574
(d)380 PTC International Finance BV 0.00%,
7/1/07............................... 281
------
1,182
------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-112
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------
PAPER & PACKAGING (1.8%)
$ 750 Indah Kiat Financial Mauritius 10.00%,
7/1/07............................... $ 517
170 Norampac, Inc. 9.50%, 2/1/08........... 174
------
691
------
REAL ESTATE (2.1%)
850 HMH Properties, Inc. Series A 7.875%,
8/1/05............................... 803
------
RETAIL--GENERAL (4.8%)
375 DR Securitized Lease Trust,
Series 1993-K1, Class A2, 7.43%,
8/15/18.............................. 338
436 DR Securitized Lease Trust,
Series 1994-K1, Class A1, 7.60%,
8/15/07.............................. 428
100 DR Securitized Lease Trust,
Series 1994-K1, Class A2, 8.375%,
8/15/15.............................. 99
150 Fred Meyer, Inc. 7.375%, 3/1/05........ 152
375 Kmart Funding Corp., Series F, 8.80%,
7/1/10............................... 384
75 Musicland Group, Inc. 9.00%, 6/15/03... 73
400 Musicland Group, Inc. 9.875%,
3/15/08.............................. 392
------
1,866
------
SERVICES (0.6%)
240 CEX Holdings, Inc. 9.625%, 6/1/08...... 226
------
TECHNOLOGY (1.5%)
(b)150 AST Research, Inc. 7.45%, 10/1/02...... 144
75 Entex Information Services 12.50%,
8/1/06............................... 45
(b)325 Hyundai Semiconductor 8.625%,
5/15/07.............................. 261
(d)240 Rhythms Netconnections, Inc.,
Series B, 0.00%, 5/15/08............. 127
------
577
------
TELECOMMUNICATIONS (29.9%)
305 American Cellular Corp. 10.50%,
5/15/08.............................. 313
300 American Communications Lines LLC,
Series B, 10.25%, 6/30/08............ 300
300 AMSC Acquisition Co., Inc., Series B,
12.25%, 4/1/08....................... 230
(b)285 Centennial Cellular Holdings 10.75%,
12/15/08............................. 294
(d)90 Dial Call Communications, Series B,
10.25%, 12/15/05..................... 92
275 Dobson Communications Corp. 11.75%,
4/15/07.............................. 289
EUR (d)405 Dolphin Telecommunications plc 0.00%,
6/1/08............................... 202
$ (b)410 Echostar DBS Corp. 9.375%, 2/1/09...... 417
315 Global Crossing Holdings, Ltd. 9.625%,
5/15/08.............................. 332
305 Globalstar LP/Capital 11.375%,
2/15/04.............................. 201
45 Globalstar LP/Capital 11.50%, 6/1/05... 29
275 Hermes Europe Railtel BV 11.50%,
8/15/07.............................. 289
(d)520 Hyperion Telecommunications 0.00%,
4/15/03.............................. 430
(d)885 Intermedia Communications, Series B,
0.00%, 7/15/07....................... 632
375 Iridium LLC/Capital Corp., Series A,
13.00%, 7/15/05...................... 75
115 IXC Communications, Inc. 9.00%,
4/15/08.............................. 110
150 Lenfest Communications, Inc. 7.625%,
2/15/08.............................. 154
205 Metromedia Fiber Network 10.00%,
11/15/08............................. 211
360 Multicanal S.A. 10.50%, 2/1/07......... 296
315 National Steel Corp., Series D, 9.875%,
3/1/09............................... 320
(d)300 Nextel Communications, Inc. 9.75%,
8/15/04.............................. 304
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------
$ (d)1700 Nextel Communications, Inc. 0.00%,
9/15/07.............................. $1,241
(d)590 NEXTLINK Communications, Inc. 0.00%,
4/15/08.............................. 353
(b)90 NEXTLINK Communications, Inc. 10.75%,
11/15/08............................. 92
EUR (d)660 NTL, Inc. 0.00%, 4/1/08................ 447
$ (d)400 Occidente Y Caribe 0.00%, 3/15/04...... 268
(b)195 OnePoint Communications Corp., 14.50%,
6/1/08............................... 106
315 Philippine Long Distance Telephone Co.
7.85%, 3/6/07........................ 269
370 Primus Telecommunications Group,
Series B, 9.875%, 5/15/08............ 351
225 PSINet, Inc., Series B, 10.00%,
2/15/05.............................. 224
(d)250 RCN Corp. 0.00%, 10/15/07.............. 168
(b,d)370 RCN Corp. 0.00%, 2/15/08............... 230
150 Rogers Cantel, Inc. 8.30%, 10/1/07..... 148
650 Rogers Communications, Inc. 8.875%,
7/15/07.............................. 658
60 Rogers Communications, Inc. 9.125%,
1/15/06.............................. 61
17 RSL Communications plc. 12.25%,
11/15/06............................. 18
(d)675 RSL Communications plc 0.00%, 3/1/08... 405
EUR 470 RSL Communications plc 9.125%,
3/1/08............................... 431
$ 55 Satelites Mexicanos S.A. Series B,
10.125%, 11/1/04..................... 44
EUR (b)160 Tele1 Europe BV 13.00%, 5/15/09........ 166
$ (b)180 Total Access Communications PCL 2.00%,
5/31/06.............................. 164
(d)320 Viatel, Inc. Series A 0.00%, 4/15/08... 206
------
11,570
------
UTILITIES (1.1%)
435 AES Corp. 8.50%, 11/1/07............... 409
------
TOTAL CORPORATE BONDS & NOTES............................. 34,522
------
ASSET BACKED SECURITIES (1.5%)
AEROSPACE & DEFENSE (0.4%)
157 Aircraft Lease Portfolio
Securitization Ltd., Series 1996-1,
Class D, 12.75%, 6/15/06............. 157
------
FINANCIAL SERVICES (1.1%)
(b)233 CA FM Lease Trust 8.50%, 7/15/17....... 217
226 Commercial Financial Services, Inc.,
Series 1997-5, Class A1 7.72%,
6/15/05.............................. 56
(b)122 Federal Mortgage Acceptance
Corporation, Series 1996-B, Class C,
7.929%, 11/1/18...................... 93
71 Long Beach Acceptance Auto Grantor
Trust 1997-1, Class B, 14.22%,
10/26/03............................. 70
------
436
------
TOTAL ASSET BACKED SECURITIES............................. 593
------
FOREIGN GOVERNMENT BONDS (2.5%)
BONDS (2.5%)
(c)693 Republic of Argentina, Series L,
5.938%, 3/31/05...................... 592
470 United Mexican States Par Bond 6.25%,
12/31/19............................. 350
------
TOTAL FOREIGN GOVERNMENT BONDS............................ 942
------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-113
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------
PREFERRED STOCKS (2.2%)
BROADCAST--RADIO & TELEVISION (0.7%)
$ (a)3,200 Paxson Communications 11.625%.......... $ 288
------
TELECOMMUNICATIONS (1.5%)
(a)1,819 Concentric Network Corp. 13.50%........ 172
(a,b)1,500 Dobson Communications Corp. 13.00%..... 145
(a)260 IXC Communications, Inc. PIK 9.00%..... 251
------
568
------
TOTAL PREFERRED STOCKS.................................... 856
------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- ---------------
WARRANTS (0.5%)
COMPUTERS (0.0%)
(a)9,000 Wam!Net, Inc., expiring 3/1/05......... 21
------
TECHNOLOGY (0.4%)
(a,b)9,600 Rhythms Netconnections, Inc., expiring
5/15/08.............................. 138
------
TELECOMMUNICATIONS (0.1%)
(a,b)3,000 American Mobile Satellite Corp.,
expiring 4/1/08...................... 11
(a,b)210 Globalstar Telecom, expiring 2/15/04... 11
(a,b)16,000 Occidente Y Caribe, expiring 3/15/04... 27
(a,b)1,950 OnePoint Communications Corp., expiring
6/1/08............................... --
------
49
------
TOTAL WARRANTS............................................ 208
------
TOTAL LONG-TERM INVESTMENTS (96.0%) (COST $38,915)........ 37,121
------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE
(000)
<C> <S> <C>
- ---------------
SHORT-TERM INVESTMENT (2.1%)
REPURCHASE AGREEMENT (2.1%)
$ 797 Chase Securities, Inc. 4.55%, dated
6/30/99, due 7/1/99, to be
repurchased at $797, collaterized by
$740 U.S. Treasury Bonds, 7.250%,
due 5/15/16, valued at $822
(COST $797).......................... 797
------
TOTAL INVESTMENTS (98.1%) (COST $39,712).................. 37,918
OTHER ASSETS IN EXCESS OF LIABILITIES (1.9%).............. 748
------
NET ASSETS (100%)......................................... $38,666
======
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
(b) -- 144A Security--Certain conditions for public sale may
exist.
(c) -- Variable/floating rate security--rate disclosed is as of
June 30, 1999.
(d) -- Step Bond--coupon rate increases in increments to
maturity. Rate disclosed is as of June 30, 1999. Maturity
date disclosed is the ultimate maturity date.
EUR -- Euro
MTN -- Medium Term Note
PCL -- Public Company Limited
PIK -- Payment-In-Kind. Income may be received in additional
securities or cash at the discretion of the issuer.
</TABLE>
----------------------------------------------------------------
SUMMARY OF LONG-TERM INVESTMENTS BY COUNTRY
<TABLE>
<CAPTION>
VALUE PERCENT OF
COUNTRY (000) NET ASSETS
- ------- -------- ----------
<S> <C> <C>
United States..................... $28,187 72.9%
Canada............................ 1,705 4.4
Germany........................... 1,397 3.6
Mexico............................ 978 2.5
Argentina......................... 888 2.3
Indonesia......................... 755 2.0
Japan............................. 647 1.7
Australia......................... 595 1.5
United Kingdom.................... 574 1.5
Philippines....................... 350 0.9
Colombia.......................... 295 0.8
Poland............................ 281 0.7
Thailand.......................... 164 0.4
Brazil............................ 161 0.4
Korea............................. 144 0.4
------- ----
$37,121 96.0%
======= ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-114
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -------------------------------------------------------------------------
ASSETS:
Investments at Value (Cost $39,712)....................... $37,918
Receivable for:
Interest................................................ 714
Investments Sold........................................ 491
Fund Shares Sold........................................ 48
Deferred Organizational Costs............................. 11
-------
Total Assets............................................ 39,182
-------
LIABILITIES:
Payable for:
Dividends Declared...................................... 242
Bank Overdraft.......................................... 108
Distribution Fees....................................... 56
Fund Shares Redeemed.................................... 35
Professional Fees....................................... 23
Directors' Fees and Expenses............................ 12
Investment Advisory Fees................................ 11
Administrative Fees..................................... 9
Shareholder Reporting Expense........................... 9
Transfer Agent Fees..................................... 6
Custody Fees............................................ 3
Other..................................................... 2
-------
Total Liabilities....................................... 516
-------
NET ASSETS.................................................. $38,666
=======
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 3
Paid in Capital in Excess of Par.......................... 40,797
Accumulated Net Investment Income......................... 95
Distributions in Excess of Net Realized Gain.............. (435)
Unrealized Depreciation on Investments.................... (1,794)
-------
NET ASSETS.................................................. $38,666
=======
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $8,120,144 and 695,094 Shares
Outstanding)............................................ $ 11.68
=======
Maximum Sales Charge...................................... 4.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share x 100/ (100 - maximum sales charge)).............. $ 12.26
=======
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $22,666,658 and 1,944,751 Shares
Outstanding)*........................................... $ 11.66
=======
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $7,878,820 and 675,698 Shares Outstanding)*... $ 11.66
=======
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-115
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 12
Interest.................................................. 3,684
-------
Total Income............................................ 3,696
-------
EXPENSES:
Distribution Fees (Attributed to Classes A, B, and C of
$23, $209, and $82, respectively)....................... 314
Investment Advisory Fees.................................. 288
Administrative Fees....................................... 99
Filing and Registration Fees.............................. 44
Professional Fees......................................... 37
Shareholder Reports....................................... 34
Custodian Fees............................................ 22
Transfer Agent Fees....................................... 22
Directors' Fees and Expenses.............................. 10
Other..................................................... 10
-------
Total Expenses.......................................... 880
Less Expense Reductions................................. (180)
-------
Net Expenses............................................ 700
-------
Net Investment Income/Loss.................................. 2,996
-------
NET REALIZED GAIN/LOSS ON:
Investments............................................... (344)
-------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... 210
-------
End of the Period
Investments............................................... (1,794)
-------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... (2,004)
-------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. (2,348)
-------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ 648
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-116
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ 2,996 $ 1,701
Net Realized Gain/Loss.................................... (344) 1,119
Net Unrealized Appreciation /Depreciation................. (2,004) (585)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 648 2,235
------------- -------------
DISTRIBUTIONS:
Net Investment Income:
Class A................................................... (749) (525)
Class B................................................... (1,540) (854)
Class C................................................... (603) (343)
------------- -------------
(2,892) (1,722)
------------- -------------
Net Realized Gain:
Class A................................................... (61) (236)
Class B................................................... (152) (415)
Class C................................................... (59) (120)
In Excess of Net Realized Gain:
Class A................................................... (97) --
Class B................................................... (244) --
Class C................................................... (94) --
------------- -------------
(707) (771)
------------- -------------
Net Decrease in Net Assets Resulting from Distributions..... (3,599) (2,493)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 27,018 32,419
Distributions Reinvested.................................. 2,061 1,273
Redeemed.................................................. (21,840) (21,623)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... 7,239 12,069
------------- -------------
Total Increase/Decrease in Net Assets..................... 4,288 11,811
NET ASSETS--Beginning of Period............................. 34,378 22,567
------------- -------------
NET ASSETS--End of Period (Including accumulated net
investment income of $95 and $36, respectively)........... $ 38,666 $ 34,378
============= =============
- ----------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) Class A:
----------
Shares:
Subscribed............................................. 1,215 786
Distributions Reinvested............................... 43 33
Redeemed............................................... (1,180) (900)
------------- -------------
Net Increase/Decrease in Class A Shares Outstanding...... 78 (81)
============= =============
Dollars:
Subscribed............................................. $ 14,702 $ 10,149
Distributions Reinvested............................... 520 420
Redeemed............................................... (14,249) (11,731)
------------- -------------
Net Increase/Decrease.................................... $ 973 $ (1,162)
============= =============
Ending Paid in Capital................................... $ 8,385+ $ 7,412
============= =============
Class B:
----------
Shares:
Subscribed............................................. 768 1,167
Distributions Reinvested............................... 89 48
Redeemed............................................... (371) (427)
------------- -------------
Net Increase/Decrease in Class B Shares Outstanding...... 486 788
============= =============
Dollars:
Subscribed............................................. $ 9,251 $ 15,056
Distributions Reinvested............................... 1,068 615
Redeemed............................................... (4,454) (5,588)
------------- -------------
Net Increase/Decrease.................................... $ 5,865 $ 10,083
============= =============
Ending Paid in Capital................................... $ 24,185+ $ 18,320
============= =============
Class C:
----------
Shares:
Subscribed............................................. 255 562
Distributions Reinvested............................... 40 19
Redeemed............................................... (264) (323)
------------- -------------
Net Increase/Decrease in Class C Shares Outstanding...... 31 258
============= =============
Dollars:
Subscribed............................................. $ 3,065 $ 7,214
Distributions Reinvested............................... 473 238
Redeemed............................................... (3,137) (4,304)
------------- -------------
Net Increase/Decrease.................................... $ 401 $ 3,148
============= =============
Ending Paid in Capital................................... $ 8,227+ $ 7,826
============= =============
</TABLE>
- -----------------
<TABLE>
<S> <C>
+ Ending Paid in Capital amounts do not reflect permanent book
to tax differences.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-117
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
---------------------------------------------- ---------------------------
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
--------------------------- MAY 1, 1996* TO ---------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 JUNE 30, 1996 1999# 1998# 1997
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD.............. $12.661 $ 12.86 $ 11.92 $ 12.00 $12.630 $ 12.86 $ 11.93
------- ------- ------- ---------------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss... 1.006 0.97 1.07 0.13 0.912 0.87 0.98
Net Realized and Unrealized
Gain/Loss......... (0.790) 0.35 0.99 (0.09) (0.776) 0.34 0.99
------- ------- ------- ---------------- ------- ------- -------
Total From Investment
Operations........ 0.216 1.32 2.06 0.04 0.136 1.21 1.97
------- ------- ------- ---------------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income... (0.967) (0.97) (1.07) (0.12) (0.883) (0.89) (0.99)
Net Realized Gain... (0.088) (0.55) (0.05) -- (0.088) (0.55) (0.05)
In Excess of Net Realized
Gain.............. (0.140) -- -- -- (0.140) -- --
------- ------- ------- ---------------- ------- ------- -------
Total Distributions... (1.195) (1.52) (1.12) (0.12) (1.111) (1.44) (1.04)
------- ------- ------- ---------------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD... $11.682 $ 12.66 $ 12.86 $ 11.92 $11.655 $ 12.63 $ 12.86
======= ======= ======= ================ ======= ======= =======
TOTAL RETURN (1)...... 1.90% 10.81% 18.12% 0.29%** 1.28% 9.86% 17.22%
======= ======= ======= ================ ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's)............. $ 8,120 $ 7,813 $ 8,980 $ 3,907 $22,667 $18,420 $ 8,617
Ratio of Expenses to Average Net
Assets.............. 1.25% 1.25% 1.25% 1.25% 2.00% 2.00% 2.00%
Ratio of Net Investment
Income/Loss to Average Net
Assets.............. 8.39% 7.42% 8.83% 6.85% 7.63% 6.70% 7.99%
Portfolio Turnover Rate... 41% 81% 104% 10%** 41% 81% 104%
- -------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss... $ 0.06 $ 0.08 $ 0.10 $ 0.04 $ 0.06 $ 0.08 $ 0.10
Ratios Before Expense Limitation:
Expenses to Average Net
Assets............ 1.72% 1.89% 2.04% 3.51% 2.48% 2.64% 2.82%
Net Investment Income/Loss to
Average Net Assets... 7.93% 6.78% 8.04% 4.59% 7.16% 6.04% 7.17%
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
----------------
MAY 1, 1996* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1996
<S> <C>
- ----------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD.............. $ 12.00
----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss... 0.12
Net Realized and Unrealized
Gain/Loss......... (0.09)
----------------
Total From Investment
Operations........ 0.03
----------------
DISTRIBUTIONS
Net Investment Income... (0.10)
Net Realized Gain... --
In Excess of Net Realized
Gain.............. --
----------------
Total Distributions... (0.10)
----------------
NET ASSET VALUE, END OF PERIOD... $ 11.93
================
TOTAL RETURN (1)...... 0.21%**
================
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's)............. $ 3,421
Ratio of Expenses to Average Net
Assets.............. 2.00%
Ratio of Net Investment
Income/Loss to Average Net
Assets.............. 6.08%
Portfolio Turnover Rate... 10%**
- -------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss... $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net
Assets............ 4.25%
Net Investment Income/Loss to
Average Net Assets... 3.83%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------
YEAR ENDED JUNE 30,
--------------------------- MAY 1, 1996* TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 JUNE 30, 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $12.634 $ 12.86 $ 11.93 $ 12.00
------- ------- ------- ----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income /Loss............................... 0.912 0.86 0.99 0.12
Net Realized and Unrealized Gain/Loss..................... (0.775) 0.35 0.98 (0.09)
------- ------- ------- ----------------
Total From Investment Operations.......................... 0.137 1.21 1.97 0.03
------- ------- ------- ----------------
DISTRIBUTIONS
Net Investment Income..................................... (0.883) (0.89) (0.99) (0.10)
Net Realized Gain......................................... (0.088) (0.55) (0.05) --
In Excess of Net Realized Gain............................ (0.140) -- -- --
------- ------- ------- ----------------
Total Distributions....................................... (1.111) (1.44) (1.04) (0.10)
------- ------- ------- ----------------
NET ASSET VALUE, END OF PERIOD.............................. $11.660 $ 12.63 $ 12.86 $ 11.93
======= ======= ======= ================
TOTAL RETURN (1)............................................ 1.28% 9.86% 17.21% 0.21%**
======= ======= ======= ================
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $ 7,879 $ 8,145 $ 4,970 $ 3,316
Ratio of Expenses to Average Net Assets..................... 2.00% 2.00% 2.00% 2.00%
Ratio of Net Investment Income/Loss to Average Net Assets... 7.61% 6.63% 8.03% 6.07%
Portfolio Turnover Rate..................................... 41% 81% 104% 10%**
- ------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income/Loss........... $ 0.06 $ 0.08 $ 0.11 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 2.48% 2.64% 2.88% 4.25%
Net Investment Income/Loss to Average Net Assets.......... 7.14% 6.01% 7.15% 3.82%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
** Non-Annualized
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-118
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen High Yield & Total Return Fund (the "Fund") is organized as a
separate diversified fund of Van Kampen Series Fund, Inc., a Maryland
Corporation, which is registered as an open-end management investment Company
under the Investment Company Act of 1940, as amended. The Fund's investment
objective seeks to maximize total return by investing in a diversified portfolio
of high-yield, high-risk income that offer a yield above what is generally
available on debt securities in the four highest categories of the recognized
rating services. The Fund commenced operations on May 1, 1996.
The Fund currently offers three classes of shares, Class A, Class B, and
Class C shares. Class A shares are sold with a front-end sales charge of up to
4.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge of 1.00% imposed in the event
of certain redemptions within one year of the purchase. Class B and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- --------------------------------------------- ----- -----
<S> <C> <C>
First........................................ 4.00% 1.00%
Second....................................... 4.00% None
Third........................................ 3.00% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Thereafter................................... None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the current bid and asked prices obtained from reputable
brokers. Bonds and other fixed income securities may be valued according to the
broadest and most representative market. In addition, bonds and other fixed
income securities may be valued on the basis of prices provided by a pricing
service which takes into account institutional size trading in similar groups of
securities. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. All other
securities and assets for which market values are not readily available are
valued at fair value as determined in good faith by the Board of Directors,
although the actual calculations may be done by others.
At June 30, 1999, approximately 86% of the net assets of the Fund consisted of
high-yield securities rated below investment grade. Investments in high-yield
securities are accompanied by a greater degree of credit risk and the risk tends
to be more sensitive to economic conditions than higher rated securities.
Certain securities may be valued on the basis of bid prices provided by one
principal market maker.
2. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may invest in repurchase agreements, which are short-term investments in
which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date.
Interest income is recognized on an accrual basis except where collection is in
doubt. Discounts and premiums on securities purchased are amortized according to
the effective yield method over their respective lives. Income, expenses (other
than class specific expenses), and realized and unrealized gains or losses are
allocated to each class of shares based upon their relative net assets.
Distributions from the Fund are recorded on the ex-distribution date.
4. ORGANIZATIONAL COSTS: The organizational costs of the Fund are being
amortized on a straight line basis over a period of five years beginning with
the Fund's
F-119
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
commencement of operations. The Adviser has agreed that in the event any of the
initial shares of the Fund originally purchased by Van Kampen are redeemed by
the Fund during the amortization period, the Fund will be reimbursed for any
unamortized organizational costs in the same proportion as the number of shares
redeemed bears to the number of initial shares at the time of redemption.
5. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
Net capital losses incurred after October 31 and within the taxable year are
deemed to arise on the first business day of the Fund's next taxable year. For
the period from November 1, 1998 to June 30, 1999 the Fund incurred and elected
to defer until July 1, 1999, for U.S. Federal income tax purposes, net capital
losses of approximately $435,000.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- --------------------- ------------ ------------ -------------
<S> <C> <C> <C>
$39,712 $614 $(2,408) $(1,794)
</TABLE>
6. DISTRIBUTION OF INCOME AND GAINS: The amount and the character of income and
capital gain distributions to be paid by the Fund are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, and paid in capital in excess of par. For
the year ended June 30, 1999, approximately $45,000 has been reclassified from
accumulated net investment income with approximately $42,000 posted to
distributions in excess of net realized gain and approximately $3,000 posted to
paid in capital in excess of par.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.), Morgan Stanley Dean Witter Investment
Management Inc. ("MSDWIM" or a "Subadviser"), and Miller Anderson &
Sherrerd LLP, wholly owned subsidiaries of Morgan Stanley Dean Witter & Co.,
provide the Fund with investment advisory services at a fee paid monthly and
calculated at the annual rates based on average daily net assets as indicated
below. The Adviser has agreed to reduce advisory fees payable to it and to
reimburse the Fund, if necessary, if the annual operating expenses, as defined,
expressed as a percentage of average daily net assets, exceed the maximum ratios
indicated as follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- --------------------- ----------------- -----------------
<S> <C> <C>
0.75% 1.25% 2.00%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$1,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides the
Fund with administrative services pursuant to an administrative agreement for a
monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the Fund, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $65,881 for Class A shares and deferred sales charges of $49,073 and
$6,313 for Class B shares and Class C shares, respectively.
F-120
<PAGE>
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Company ("MSTC"), a former affiliate of the Subadvisers.
On October 1, 1998, the Chase Manhattan purchased MSTC.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $25,944,000 and sales of approximately $14,451,000 of
investment securities other than long-term U.S. government securities and
short-term investments. There were no purchases or sales of long-term
U.S. government securities.
F-121
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen International Magnum Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen International Magnum
Fund (the "Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the
results of its operations, the changes in its net assets and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-122
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------------------
COMMON STOCKS (97.8%)
AUSTRALIA (2.8%)
AMP Ltd.................................. 8,250 $ 90
Brambles Industries Ltd.................. 5,000 131
Broken Hill Proprietary Co., Ltd......... 17,750 205
Cable & Wireless Optus Ltd............... 36,900 84
Colonial Ltd............................. 25,550 90
Fosters Brewing Group Ltd................ 64,900 182
Lend Lease Corp., Ltd.................... 13,800 189
National Australia Bank Ltd.............. 24,300 401
News Corp., Ltd.......................... 37,740 321
Normandy Mining Ltd...................... 71,300 47
Oil Search Ltd........................... 58,200 86
Quantas Airlines......................... 36,400 120
Rio Tinto Ltd............................ 17,150 280
Telstra Corp., Ltd....................... 74,950 428
Westpac Banking Corp., Ltd............... 40,150 259
WMC Ltd.................................. 16,950 72
--------
2,985
--------
BELGIUM (0.2%)
Fortis 'B'............................... 6,400 201
--------
DENMARK (1.2%)
Nova Nordisk A/S 'B'..................... 9,110 983
Unidanmark A/S 'A' (Registered).......... 4,300 287
--------
1,270
--------
FINLAND (2.2%)
KCI Konecranes International plc......... 9,370 322
Kone Oyj 'B'............................. 3,285 411
Merita Ltd. 'A' plc...................... 166,970 950
Sampo Insurance Co., Ltd. 'A'............ 24,580 713
--------
2,396
--------
FRANCE (10.3%)
Alcatel Alsthom.......................... 4,380 617
Axa...................................... 3,710 453
Cie de Saint Gobain...................... 5,492 876
(a)CNP Assurances........................ 47,350 1,295
Elf Aquitaine............................ 5,180 761
Groupe Danone RFD........................ 2,793 721
Michelin (C.G.D.E.) 'B'.................. 24,930 1,021
Pernod-Ricard............................ 15,110 1,014
Rhone-Poulenc S.A. 'A'................... 20,400 934
Suez Lyonnaise des Eaux.................. 2,200 397
Schneider S.A............................ 21,630 1,216
(a)Total S.A. 'B'........................ 14,110 1,823
--------
11,128
--------
GERMANY (5.9%)
Adidas-Salomon AG........................ 5,250 512
BASF AG.................................. 21,260 935
Bayer AG................................. 19,200 1,223
Bewag AG................................. 20,907 324
Hoechst AG............................... 20,000 902
Mannesmann AG............................ 1,740 261
Schering AG.............................. 8,660 926
Siemens AG............................... 3,150 243
Volkswagen AG............................ 15,270 987
--------
6,313
--------
HONG KONG (2.7%)
Cathay Pacific Airways Ltd............... 55,900 86
Cheung Kong Holdings Ltd................. 67,500 600
China Telecom Ltd........................ 103,500 288
Dao Heng Bank Group Ltd.................. 19,000 85
Hong Kong & Shanghai Bank Holdings plc... 7,400 270
Hong Kong Telecommunications Ltd......... 106,600 277
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Hutchison Whampoa Ltd.................... 50,600 $ 458
Li & Fung Ltd............................ 55,900 134
New World Development Co. Ltd............ 22,000 66
SmarTone Telecom Holdings Ltd............ 34,300 122
Sun Hung Kai Properties Ltd.............. 39,300 358
Swire Pacific Ltd. 'A'................... 30,000 149
Television Broadcasts Ltd................ 12,000 56
--------
2,949
--------
IRELAND (1.3%)
Bank of Ireland.......................... 60,004 1,010
Greencore Group plc...................... 127,000 393
--------
1,403
--------
ITALY (3.5%)
Banca Popolare di Bergamo S.p.A.......... 44,660 982
Marzotto (Gaetano) & Figli S.p.A......... 53,300 415
Mediaset S.p.A........................... 105,500 939
Telecom Italia S.p.A..................... 140,000 1,457
--------
3,793
--------
JAPAN (24.9%)
Aiwa Co., Ltd............................ 8,000 265
Amada Co., Ltd........................... 53,000 375
Canon, Inc............................... 29,000 835
Casio Computer Co., Ltd.................. 35,000 266
Dai Nippon Printing Co., Ltd............. 26,000 416
Daicel Chemical Industries Ltd........... 96,000 353
Daifuku Co., Ltd......................... 51,000 357
Daikin Industries Ltd.................... 46,000 535
FamilyMart Co., Ltd...................... 7,200 331
Fuji Machine Manufacturing Co............ 19,000 586
Fuji Photo Film Co....................... 20,000 758
Fujitec Co. Ltd.......................... 32,000 304
Fujitsu Ltd.............................. 54,000 1,088
Furukawa Electric Co., Ltd............... 77,000 354
Hitachi Credit Corp...................... 19,700 390
Hitachi Ltd.............................. 109,000 1,023
Kaneka Corp.............................. 66,000 622
Kurita Water Industries Ltd.............. 22,000 395
Kyocera Corp............................. 8,400 493
Kyudenko Co., Ltd........................ 25,000 143
Lintec Corp.............................. 20,000 201
Matsushita Electric Industrial Co.,
Ltd.................................... 36,000 700
Minebea Co., Ltd......................... 36,000 402
Mitsubishi Chemical Corp................. 90,000 312
Mitsubishi Estate Co., Ltd............... 40,000 391
Mitsubishi Heavy Industries Ltd.......... 97,000 394
Mitsumi Electric Co., Ltd................ 25,000 699
NEC Corp................................. 77,000 959
Nifco, Inc............................... 25,000 241
Nintendo Corp., Ltd...................... 8,300 1,168
Nippon Telegraph & Telephone Corp. ADR... 78 910
Nissan Motor Co., Ltd.................... 150,000 717
Nissha Printing Co., Ltd................. 20,000 146
Ono Pharmaceutical Co., Ltd.............. 15,000 521
Ricoh Co., Ltd........................... 70,000 965
Rinnai Corp.............................. 13,900 320
Rohm Co.................................. 3,000 470
Ryosan Co................................ 10,000 199
Sangetsu Co., Ltd........................ 9,000 192
Sankyo Co., Ltd.......................... 32,000 807
Sanwa Shutter Corp....................... 44,000 239
Sekisui Chemical Co...................... 42,000 244
Sekisui House Ltd........................ 34,000 367
Shin-Etsu Polymer Co., Ltd............... 44,000 247
Sony Corp................................ 8,400 907
Suzuki Motor Co., Ltd.................... 31,000 494
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-123
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
JAPAN (CONT.)
TDK Corp................................. 8,000 $ 733
Toshiba Corp............................. 133,000 950
Toyota Motor Corp........................ 21,000 665
Tsubakimoto Chain Co..................... 76,000 271
Yamaha Corp.............................. 30,000 361
Yamanouchi Pharmaceutical Co............. 21,000 804
--------
26,885
--------
NETHERLANDS (4.2%)
ABN Amro Holdings N.V.................... 10,200 221
Akzo Nobel N.V........................... 32,315 1,362
Benckiser N.V. 'B'....................... 7,900 422
ING Groep N.V............................ 27,573 1,495
Laurus N.V............................... 6,150 143
Philips Electonics N.V................... 9,075 896
--------
4,539
--------
NEW ZEALAND (0.1%)
Telecom Corp. of New Zealand Ltd......... 30,000 129
--------
PORTUGAL (1.0%)
Banco Comercial Portugues S.A.
(Registered)........................... 2,600 68
Electricidade de Portugal S.A............ 54,150 976
--------
1,044
--------
SINGAPORE (1.8%)
City Developments Ltd.................... 25,900 166
Development Bank of Singapore Ltd.
(Foreign).............................. 28,000 342
NatSteel Ltd............................. 40,000 175
Oversea-Chinese Banking Corp., Ltd.
(Foreign).............................. 17,000 142
Overseas Union Bank Ltd. (Foreign)....... 23,000 111
Sembcorp Logistics Ltd................... 19,000 75
Singapore Airlines Ltd. (Foreign)........ 22,000 209
Singapore Press Holdings Ltd............. 15,000 255
Singapore Telecommunications Ltd......... 87,000 149
United Overseas Bank Ltd. (Foreign)...... 17,000 119
Venture Manufacturing Ltd................ 24,000 185
--------
1,928
--------
SPAIN (3.4%)
Banco Popular Espanol S.A................ 6,310 455
Banco Santander Central Hispano S.A...... 42,000 438
Endesa S.A............................... 34,300 732
Iberdrola S.A............................ 50,800 775
(a)Telefonica de Espana.................. 25,320 1,221
--------
3,621
--------
SWEDEN (4.0%)
Autoliv, Inc. SDR........................ 29,000 887
Ericsson LM 'B'.......................... 8,850 285
ForeningsSparbanken AB................... 6,900 98
Nordbanken Holding AB.................... 160,200 940
Svedala Industri AB...................... 50,000 903
Svenska Handelsbanken 'A'................ 101,100 1,217
--------
4,330
--------
SWITZERLAND (8.6%)
Cie Financiere Richemont AG 'A'.......... 1,238 2,386
Holderbank Financiere Glarus AG 'B'
(Bearer)............................... 982 1,161
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C> <C>
Nestle S.A. (Registered)................. 1,275 $ 2,302
Novartis AG (Registered)................. 470 688
Roche Holding AG-Genusshein.............. 68 700
Schindler Holding AG (Registered)........ 269 416
Swisscom AG (Registered)................. 2,110 795
Union Bank of Switzerland AG
(Registered)........................... 2,900 867
--------
9,315
--------
UNITED KINGDOM (19.7%)
Aegis Group plc.......................... 270,280 597
Allied Domecq plc........................ 110,800 1,070
Allied Zurich plc........................ 91,400 1,150
BG plc................................... 148,428 907
BOC Group plc............................ 49,250 963
British Telecommunications plc........... 90,800 1,523
Burmah Castrol plc....................... 40,217 764
Capital Radio plc........................ 75,000 994
Centrica plc............................. 227,790 535
Diageo plc............................... 66,983 700
Glaxo Wellcome plc....................... 13,400 373
Great Universal Stores plc............... 102,670 1,139
Halma plc................................ 417,400 698
Imperial Tobacco Group plc............... 106,300 1,160
Lloyds TSB Group plc..................... 47,400 643
Morgan Crucible Co. plc.................. 107,300 454
Prudential Corp. plc..................... 66,100 974
Reckitt & Colman plc..................... 138,768 1,448
Royal & Sun Alliance Insurance Group
plc.................................... 73,977 664
Royal Bank of Scotland Group plc......... 61,082 809
Sainsbury (J) plc........................ 62,000 391
Scottish & Southern Energy plc........... 102,400 1,048
Shell Transport & Trading Co. plc........ 66,400 498
Smith & Nephew plc....................... 50,900 155
SSL International plc.................... 36,400 418
Tesco plc................................ 128,300 330
WPP Group plc............................ 99,600 843
--------
21,248
--------
TOTAL COMMON STOCKS..................................... 105,477
--------
PREFERRED STOCKS (1.8%)
GERMANY (1.8%)
Fresenius AG............................. 7,915 1,389
Henkel KGaA AG........................... 8,300 581
--------
1,970
--------
TOTAL LONG-TERM INVESTMENTS (99.6%) (COST $99,365)...... 107,447
--------
FOREIGN CURRENCY (1.7%) (COST $1,799)................... 1,793
--------
TOTAL INVESTMENTS (101.3%) (COST $101,164).............. 109,240
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.3%)........... (1,384)
--------
NET ASSETS (100%)....................................... $107,856
========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
ADR -- American Depositary Receipt
RFD -- Ranked for Dividend
SDR -- Swedish Depositary Receipt
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-124
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
- --------------------------------------------------------------------------------
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------- -------- ----------
<S> <C> <C>
Consumer Goods.............................................. $ 31,260 29.0%
Finance..................................................... 21,222 19.7
Capital Equipment........................................... 18,558 17.2
Services.................................................... 15,655 14.5
Materials................................................... 10,462 9.7
Energy...................................................... 9,435 8.7
Multi-Industry.............................................. 855 0.8
-------- ----
$107,447 99.6%
======== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-125
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
ASSETS:
Investments at Value (Cost $99,365)....................... $107,447
Foreign Currency (Cost $1,799)............................ 1,793
Margin Deposit on Futures................................. 701
Receivable for:
Investments Sold........................................ 734
Dividends............................................... 320
Fund Shares Sold........................................ 294
Foreign Withholding Tax Reclaim......................... 90
Net Unrealized Gain on Foreign Currency Exchange
Contracts............................................... 8
Other..................................................... 20
--------
Total Assets............................................ 111,407
--------
LIABILITIES:
Payable for:
Custodian Overdraft..................................... 1,666
Investments Purchased................................... 1,362
Fund Shares Redeemed.................................... 165
Distribution Fees....................................... 123
Custody Fees............................................ 65
Investment Advisory Fees................................ 65
Administrative Fees..................................... 25
Professional Fees....................................... 24
Transfer Agent Fees..................................... 21
Shareholder Reporting Expense........................... 19
Directors' Fees and Expenses............................ 14
Other..................................................... 2
--------
Total Liabilities....................................... 3,551
--------
NET ASSETS.................................................. $107,856
========
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 8
Paid in Capital in Excess of Par.......................... 106,226
Net Unrealized Appreciation on Investments and Foreign
Currency Translations................................... 8,068
Distributions in Excess of Net Investment Income.......... (23)
Accumulated Net Realized Loss............................. (6,423)
--------
NET ASSETS.................................................. $107,856
========
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $45,573,218 and 3,358,578 Shares
Outstanding)............................................ $ 13.57
========
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100 / (100 - maximum sales charge))............. $ 14.40
========
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $48,095,622 and 3,571,823 Shares
Outstanding)*........................................... $ 13.47
========
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $14,187,085 and 1,049,263 Shares
Outstanding)*........................................... $ 13.52
========
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-126
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 2,262
Interest.................................................. 441
Less Foreign Taxes Withheld............................... (256)
-------
Total Income............................................. 2,447
-------
EXPENSES:
Investment Advisory Fees.................................. 943
Distribution Fees (Attributed to Classes A, B, and C of
$138, $482, and $144, respectively)..................... 764
Administrative Fees....................................... 318
Custodian Fees............................................ 139
Transfer Agent Fees....................................... 116
Shareholder Reports....................................... 66
Professional Fees......................................... 43
Filing and Registration Fees.............................. 40
Directors' Fees and Expenses.............................. 11
Amortization of Organizational Costs...................... 8
Other..................................................... 32
-------
Total Expenses........................................... 2,480
Less Expense Reductions.................................. (39)
-------
Net Expenses............................................. 2,441
-------
Net Investment Income/Loss.................................. 6
-------
NET REALIZED GAIN/LOSS ON:
Investments............................................... (5,131)
Foreign Currency Transactions............................. (1,176)
Futures................................................... (544)
-------
Net Realized Gain/Loss................................... (6,851)
-------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... 10,250
-------
End of the Period:
Investments............................................. 8,082
Foreign Currency Translations........................... (14)
-------
8,068
-------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... (2,182)
-------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. (9,033)
-------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $(9,027)
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-127
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ 6 $ 679
Net Realized Gain/Loss.................................... (6,851) 1,875
Net Unrealized Appreciation/Depreciation.................. (2,182) 6,066
------------- -------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. (9,027) 8,620
------------- -------------
DISTRIBUTIONS:
Net Investment Income:
Class A................................................... (1,075) (488)
Class B................................................... (551) (330)
Class C................................................... (161) (53)
In Excess of Net Investment Income:
Class A................................................... (14) --
Class B................................................... (7) --
Class C................................................... (2) --
------------- -------------
(1,810) (871)
------------- -------------
Net Realized Gain:
Class A................................................... -- (33)
Class B................................................... -- (31)
Class C................................................... -- (9)
In Excess of Net Realized Gain:
Class A................................................... (709) --
Class B................................................... (611) --
Class C................................................... (179) --
------------- -------------
(1,499) (73)
------------- -------------
Net Decrease in Net Assets Resulting from Distributions... (3,309) (944)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 79,794 106,801
Distributions Reinvested.................................. 2,837 850
Redeemed.................................................. (96,317) (30,781)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... (13,686) 76,870
------------- -------------
Total Increase/Decrease in Net Assets..................... (26,022) 84,546
NET ASSETS--Beginning of Period............................. 133,878 49,332
------------- -------------
NET ASSETS--End of Period (Including distributions in
excess/undistributed net investment income of $(23) and
$1,524, respectively)..................................... $ 107,856 $ 133,878
============= =============
- --------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) Class A:
Shares:
Subscribed............................................. 1,848 4,160
Distributions Reinvested............................... 120 38
Redeemed............................................... (3,110) (1,276)
------------- -------------
Net Increase/Decrease in Class A Shares Outstanding...... (1,142) 2,922
============= =============
Dollars:
Subscribed............................................. $ 24,712 $ 58,246
Distributions Reinvested............................... 1,503 473
Redeemed............................................... (40,959) (17,581)
------------- -------------
Net Increase/Decrease.................................... $ (14,744) $ 41,138
============= =============
Ending Paid in Capital................................... $ 46,134+ $ 60,878
============= =============
Class B:
Shares:
Subscribed............................................. 1,344 2,713
Distributions Reinvested............................... 84 26
Redeemed............................................... (1,357) (556)
------------- -------------
Net Increase/Decrease in Class B Shares Outstanding...... 71 2,183
============= =============
Dollars:
Subscribed............................................. $ 17,633 $ 37,386
Distributions Reinvested............................... 1,048 322
Redeemed............................................... (17,469) (7,487)
------------- -------------
Net Increase/Decrease.................................... $ 1,212 $ 30,221
============= =============
Ending Paid in Capital................................... $ 48,048+ $ 46,836
============= =============
Class C:
Shares:
Subscribed............................................. 2,928 809
Distributions Reinvested............................... 23 4
Redeemed............................................... (2,952) (425)
------------- -------------
Net Increase/Decrease in Class C Shares Outstanding...... (1) 388
============= =============
Dollars:
Subscribed............................................. $ 37,449 $ 11,169
Distributions Reinvested............................... 286 55
Redeemed............................................... (37,889) (5,713)
------------- -------------
Net Increase/Decrease.................................... $ (154) $ 5,511
============= =============
Ending Paid in Capital................................... $ 13,362+ $ 13,516
============= =============
</TABLE>
- ---------------
+ Ending Paid in Capital amounts do not reflect permanent book to tax
differences.
The accompanying notes are an integral part of the financial statements.
F-128
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------ -------------------------------------
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
----------------- JULY 1, 1996* TO ----------------- JULY 1, 1996* TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# JUNE 30, 1997 1999# 1998# JUNE 30, 1997
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD............ $14.845 $ 13.91 $ 12.00 $14.724 $ 13.84 $ 12.00
------- ------- -------------- ------- ------- --------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss.................... 0.049 0.17 0.17 (0.043) 0.05 0.10
Net Realized and Unrealized Gain/Loss......... (0.910) 0.96 1.88 (0.903) 0.97 1.85
------- ------- -------------- ------- ------- --------------
Total From Investment Operations.............. (0.861) 1.13 2.05 (0.946) 1.02 1.95
------- ------- -------------- ------- ------- --------------
DISTRIBUTIONS
Net Investment Income......................... (0.248) (0.18) (0.13) (0.147) (0.13) (0.10)
In Excess of Net Investment Income............ (0.003) -- -- (0.002) -- --
Net Realized Gain............................. -- (0.01) (0.01) -- (0.01) (0.01)
In Excess of Net Realized Gain................ (0.164) -- -- (0.164) -- --
------- ------- -------------- ------- ------- --------------
Total Distributions........................... (0.415) (0.19) (0.14) (0.313) (0.14) (0.11)
------- ------- -------------- ------- ------- --------------
NET ASSET VALUE, END OF PERIOD.................. $13.569 $ 14.85 $ 13.91 $13.465 $ 14.72 $ 13.84
======= ======= ============== ======= ======= ==============
TOTAL RETURN (1)................................ (5.54)% 8.32% 17.30%** (6.28)% 7.55% 16.40%**
======= ======= ============== ======= ======= ==============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............... $45,573 $66,817 $ 21,961 $48,096 $51,541 $ 18,215
Ratio of Expenses to Average Net Assets......... 1.65% 1.65% 1.65% 2.40% 2.40% 2.40%
Ratio of Net Investment Income/Loss to Average
Net Assets.................................... 0.37% 1.19% 1.39% (0.33)% 0.40% 0.54%
Portfolio Turnover Rate......................... 70% 35% 22%** 70% 35% 22%**
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During
the Period
Per Share Benefit to Net Investment
Income/Loss................................. $ 0.00+ $ 0.02 $ 0.11 $ 0.00+ $ 0.02 $ 0.17
Ratios Before Expense Limitation:
Expenses to Average Net Assets................ 1.71% 1.82% 2.50% 2.46% 2.57% 3.34%
Net Investment Income/Loss to Average Net
Assets...................................... 0.33% 1.02% 0.52% (0.37)% 0.23% (0.42)%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
------------------------------------------
YEAR ENDED
JUNE 30,
-------------------- JULY 1, 1996* TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# JUNE 30, 1997
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $14.782 $ 13.83 $ 12.00
------- ------- --------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................................ (0.034) 0.05 0.06
Net Realized and Unrealized Gain/Loss..................... (0.914) 0.99 1.88
------- ------- --------------
Total From Investment Operations.......................... (0.948) 1.04 1.94
------- ------- --------------
DISTRIBUTIONS
Net Investment Income..................................... (0.147) (0.08) (0.10)
In Excess of Net Investment Income........................ (0.002) -- --
Net Realized Gain......................................... -- (0.01) (0.01)
In Excess of Net Realized Gain............................ (0.164) -- --
------- ------- --------------
Total Distributions....................................... (0.313) (0.09) (0.11)
------- ------- --------------
NET ASSET VALUE, END OF PERIOD.............................. $13.521 $ 14.78 $ 13.83
======= ======= ==============
TOTAL RETURN (1)............................................ (6.25)% 7.55% 16.27%**
======= ======= ==============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $14,187 $15,520 $ 9,156
Ratio of Expenses to Average Net Assets..................... 2.40% 2.40% 2.40%
Ratio of Net Investment Income/Loss to Average Net Assets... (0.26)% 0.36% 0.29%
Portfolio Turnover Rate..................................... 70% 35% 22%**
- ------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income/Loss........... $ 0.00+ $ 0.02 $ 0.21
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 2.46% 2.56% 3.45%
Net Investment Income/Loss to Average Net Assets.......... (0.30)% 0.20% (0.77)%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
** Non-Annualized
+ Amount is less than $0.01 per share.
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-129
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen International Magnum Fund (the "Fund") is organized as a separate
non-diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation,
which is registered as an open-end management company under the Investment
Company Act of 1940, as amended. The Fund's investment objective seeks long-term
capital appreciation by investing primarily in equity securities of non-U.S.
issuers in accordance with EAFE country weightings determined by the Adviser.
The Fund commenced operations on July 1, 1996.
The Fund currently offers three classes of shares, Class A, Class B, and
Class C shares. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge of 1.00% imposed in the event
of certain redemptions within one year of the purchase. Class B and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
------------
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First........................................ 5.00% 1.00%
Second....................................... 4.00% None
Third........................................ 3.00% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Thereafter................................... None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Securities listed on a foreign exchange are valued at
their closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the current bid and asked prices obtained from reputable
brokers. All other securities and assets for which market values are not readily
available are valued at fair value as determined in good faith by the Board of
Directors, although the actual calculations may be done by others.
2. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date, net
of applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on an accrual basis except where
collection is in doubt. Income, expenses (other than class specific expenses)
and realized and unrealized gains or losses are allocated to each class of
shares based upon their relative net assets. Distributions from the Fund are
recorded on the ex-distribution date.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices. Purchases and sales of portfolio securities are translated at the
rate of exchange prevailing when such securities were purchased or sold. Income
and expenses are translated at rates prevailing when accrued. Realized and
unrealized gains and losses on securities are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and losses on foreign currency includes the net
realized amount from the sale of the currency and the amount realized between
trade date and settlement date on security and income transactions. However, the
foreign currency portion of gains and losses realized on sales and maturities of
foreign denominated debt securities is treated as ordinary income for U.S.
Federal income tax purposes.
5. ORGANIZATIONAL COSTS: The organizational costs of the Fund are being
amortized on a straight line basis over a period of five years beginning with
the Fund's commencement of operations. The Adviser has agreed that in the event
any of the initial shares of the Fund originally purchased by Van Kampen are
redeemed by the Fund during
F-130
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
the amortization period, the Fund will be reimbursed for any unamortized
organizational costs in the same proportion as the number of shares redeemed
bears to the number of initial shares held at the time of redemption.
6. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such
taxes are generally based on income earned or gains realized or repatriated.
Taxes are accrued and applied to net investment income, net realized capital
gains, and net unrealized appreciation, as applicable, as the income is earned
or capital gains are recorded.
To the extent that capital loss carryforwards are used to offset any future net
capital gains realized during the carryforward period as provided by U.S.
Federal income tax regulations, no capital gains tax liability will be incurred
by a Fund for gains realized and not distributed. To the extent that capital
gains are so offset, such gains will not be distributed to shareholders.
At June 30, 1999, the Fund had available capital loss carryforward for U.S.
Federal income tax purposes of approximately $2,624,000 which will expire
June 30, 2007.
Net capital losses incurred after October 31 and within the taxable year are
deemed to arise on the first business day of the Fund's next taxable year. For
the period from November 1, 1998 to June 30, 1999 the Fund incurred and elected
to defer until July 1, 1999, for U.S. Federal income tax purposes, net capital
losses of approximately $3,163,000.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- ----- -------- -------- -------------
<S> <C> <C> <C>
$ 100,001 $12,463 $(5,017) $7,446
</TABLE>
7. DISTRIBUTION OF INCOME AND GAINS: The amount and the character of income and
capital gain distributions to be paid by the Fund are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing book and
tax treatment for foreign currency transactions, net operating losses, foreign
taxes on net realized gains, deductibility of interest expense on short sales
and gains on certain securities of corporations designated as "passive foreign
investment companies."
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss and paid in capital in excess of par. For the
year ended June 30, 1999, approximately $1,310,000 has been reclassified from
paid in capital in excess of par with approximately $257,000 posted to
distributions in excess of net investment income and approximately $1,053,000
posted to accumulated net realized loss.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., provide the Fund with investment advisory services at a fee
paid monthly and calculated at the annual rates based on average daily net
assets as indicated below. The Adviser has agreed to reduce advisory fees
payable to it and to reimburse the Fund, if necessary, if the annual operating
expenses, as defined, expressed as a percentage of average daily net assets,
exceed the maximum ratios indicated as follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- ------------ -------------- --------------
<S> <C> <C>
0.80% 1.65% 2.40%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$4,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides the
Fund with administrative services pursuant to an administrative agreement for a
monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the portfolio, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Portfolio a distribution fee, which
is accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to
F-131
<PAGE>
VAN KAMPEN INTERNATIONAL MAGNUM FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
1.00% of the Class B and Class C shares of the Fund, on an annualized basis, of
the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $239,826 for Class A shares and deferred sales charges of $8,799,
$206,929, and $28,632 for Class A shares, Class B shares, and Class C shares,
respectively.
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Trust Company ("MSTC"), a former affiliate of the
Subadvisers. Through September 30, 1998, the Fund incurred MSTC fees of
approximately $27,000. On October 1, 1998, the Chase Manhattan Bank purchased
MSTC.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
During the year ended June 30, 1999, the Fund incurred approximately $8,000 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/ dealer.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Portfolio made
purchases of approximately $77,070,000 and sales of approximately $77,028,000 of
investment securities other than long-term U.S. government securities and
short-term investments. There were no purchases or sales of long-term U.S.
government securities.
D. DERIVATIVE FINANCIAL INSTRUMENTS: A derivative financial instrument in very
general terms refers to a security whose value is "derived" from the value of an
underlying asset, reference rate or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's foreign currency exposure. All of the
Fund's portfolio holdings, including derivative instruments,
are marked-to-market each day with the change in value reflected in unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when exercising a call option contract or taking
delivery of a security underlying a forward contract. In this instance, the
recognition of gain or loss is postponed until the disposal of the security
underlying the option or forward contract. Risks may arise as a result of the
potential inability of the counterparties to meet the terms of their contracts.
Summarized below are the specific types of derivative financial instruments used
by the Fund.
1. FORWARD CURRENCY CONTRACTS: These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on foreign currency transactions.
At June 30, 1999, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
VALUE DEPRECIATION
FORWARD CURRENCY CONTRACTS (000) (000)
- -------------------------- ------- -------------
<S> <C> <C>
SHORT CONTRACTS:
Japanese Yen,
322,227,600 expiring 7/19/99.......... $2,674 $8
====== ==
</TABLE>
2. FUTURES CONTRACTS: A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures of U.S. Treasury Notes and typically closes
the contract prior to the delivery date.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin). The potential risk of loss associated
with a futures contract is in excess of the variation margin reflected on the
Statement of Assets and Liabilities. The cost of securities acquired through
delivery under a contract is adjusted by the unrealized gain or loss on the
contract.
Transactions in futures contracts for the year ended June 30, 1999, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS
---------
<S> <C>
Outstanding at June 30, 1998......................... -0-
Futures Opened....................................... 516
Futures Closed....................................... (516)
----
Outstanding at June 30, 1999......................... -0-
====
</TABLE>
F-132
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Latin American Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Latin American Fund (the
"Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the results of
its operations, the changes in its net assets and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits which included
confirmation of securities at June 30, 1999 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. RANDOLPH DR.
CHICAGO, ILLINOIS 60601
AUGUST 6, 1999
F-133
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------------------
COMMON STOCKS (75.3%)
ARGENTINA (6.4%)
Banco Rio de La Plata ADR............ 24,505 $ 233
Quilmes Industrial ADR............... 100,955 1,249
Telecom Argentina ADR................ 62,418 1,670
Telefonica de Argentina ADR.......... 27,398 859
-------
4,011
-------
BRAZIL (11.9%)
CEMIG ADR............................ 31,273 665
(c)CEMIG ADR......................... 835 18
(a)Cia Electric de Est Rio Janerio... 1,911,759,000 454
Copel 'B' ADR........................ 37,525 314
Cia Siderurgica Nacional............. 18,244,000 477
Coteminas............................ 2,492,000 127
(b,c)Coteminas ADR................... 22,545 57
CVRD 'A'............................. 5,000 70
Eletrobras ADR....................... 5,440 52
Eletrobras 'B' ADR................... 43,930 442
Eletrobras S.A....................... 21,024,000 397
Embratel Participacoes ADR........... 64,520 895
(a)Lojas Arupau ADR.................. 10,410 --
(c)Petrobras ADR..................... 22,943 358
Petrobras ADR........................ 15,640 241
(c)Rossi Residencial S.A. GDR........ 44,287 50
Rossi Residencial S.A. GDS........... 187,805 211
Tele Leste Celular ADR............... 1,160 35
Tele Norte Leste ADR................. 23,523 437
Tele Sudeste Celular ADR............. 2,290 66
Telesp Celular ADR................... 21,330 571
Telesp ADR........................... 25,710 588
Unibanco GDR......................... 40,390 972
(a)Vale Do Rio Doce ADR.............. 31,997 --
-------
7,497
-------
CHILE (8.8%)
Banco Edwards ADR.................... 25,362 368
Banco Santander ADR.................. 7,549 117
Banco Santiago ADR................... 13,910 267
CCU ADR.............................. 28,067 803
Chilectra ADR........................ 49,206 1,033
CTC ADR.............................. 65,225 1,614
D & S ADR............................ 18,265 342
ENDESA ADR........................... 15,387 187
Enersis ADR.......................... 14,450 331
Quinenco ADR......................... 27,439 257
(a)Santa Isabel ADR.................. 20,698 210
-------
5,529
-------
COLOMBIA (0.4%)
Bavaria.............................. 46,693 175
Valores Bavaria...................... 74,594 62
-------
237
-------
MEXICO (44.6%)
Alfa................................. 238,666 992
(a)Banacci 'L'....................... 154,310 377
(a)Banacci 'O'....................... 106,488 269
(a)Carso Global Telecom 'A1'......... 155,952 988
Cemex 'B' ADR........................ 131,309 1,297
Cemex CPO............................ 243,975 1,207
Cemex CPO ADR........................ 31,930 303
Cemex 'B'............................ 262,774 1,305
(a)Cifra 'C'......................... 488,695 895
(a)Cifra 'V'......................... 168,221 327
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
(a)Cifra 'V' ADR..................... 11,324 $ 217
Empresas ICA S.A..................... 153,950 170
Empresas S.A. ADR.................... 36,571 247
FEMSA................................ 364,497 1,458
FEMSA ADR............................ 33,521 1,337
(a)Grupo Carso 'A1'.................. 182,724 847
Grupo Modelo 'C'..................... 185,448 529
(a)Grupo Financiero Banorte S.A. de
C.V. 'O'........................... 333,298 481
Grupo Financiero Bancomer S.A. de
C.V. 'O'........................... 1,462,500 528
(a)Grupo Industrial Bimbo S.A. de CV
'A'................................ 73,595 163
Kimberly 'A'......................... 594,916 2,450
(a)Seminis, Inc. 'A'................. 32,800 494
Soriana 'B'.......................... 253,815 1,196
TAMSA ADR............................ 20,777 226
Telmex ADR........................... 83,206 6,724
(a)Televisa CPO GDR.................. 62,941 2,820
Vitro ADR............................ 58,008 297
-------
28,144
-------
PERU (1.1%)
Tel Peru 'B' ADR..................... 47,863 724
-------
VENEZUELA (2.1%)
CANTV ADR............................ 49,285 1,343
-------
TOTAL COMMON STOCKS....................................... 47,485
-------
PREFERRED STOCKS (23.4%)
BRAZIL (23.4%)
Banco Bradesco....................... 15,930,000 80
(a,b)Banco Nacional.................. 8,115,000 --
(a)Celular CRT Participacoes S.A..... 6,717,974 911
CEMIG................................ 45,693,270 961
Copel................................ 164,715,900 1,340
CRT.................................. 5,099,574 1,251
CVRD 'A'............................. 61,289 1,212
CVRD................................. 28,970 576
Eletrobras 'B'....................... 24,984,200 504
Embratel Participacoes 'A'........... 60,563,000 835
Gerdau............................... 29,631,867 494
Globex Utilidades S.A................ 8,000 42
Iven................................. 600,500 78
Itaubanco............................ 1,090,641 558
(a)Lojas Arapua S.A.................. 19,195,300 --
Petrobras............................ 12,662,697 1,961
Telebras ADR......................... 7,941 716
Tele Centro Sul...................... 35,820,560 396
Tele Leste Celular................... 370,217,700 226
Tele Nordeste Celular................ 78,574,300 106
Tele Norte Celular................... 339,309,000 196
Tele Norte Leste..................... 63,958,000 1,157
Tele Sudeste Celular................. 53,316,960 301
Telesp Celular....................... 28,850,730 298
Telesp............................... 3,521,000 416
Usiminas............................. 52,200 176
-------
TOTAL PREFERRED STOCK..................................... 14,791
-------
<CAPTION>
NO. OF
RIGHTS
-------------
RIGHTS (0.0%)
<S> <C> <C>
BRAZIL (0.0%)
(a,b)CRT............................. 2,184,997 --
-------
TOTAL LONG-TERM INVESTMENTS (98.7%) (COST $61,089)........ 62,276
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-134
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------
SHORT-TERM INVESTMENT (4.8%)
REPURCHASE AGREEMENT (4.8%)
Chase Securities, Inc., 4.55%, dated $ 3,032
6/30/99, due 7/1/99, to be
repurchased at $3,032, collaterized
by $3,175 U.S. Treasury Bill,
4.58%, due 1/6/00, valued at $3,096
(COST $3,032)....................................... $ 3,032
-------
TOTAL INVESTMENTS IN SECURITIES (103.5%) (COST $64,121)... 65,308
-------
FOREIGN CURRENCY (0.2%) (COST $127)....................... 128
-------
TOTAL INVESTMENTS (103.7%) (COST $64,248)................. 65,436
LIABILITIES IN EXCESS OF OTHER ASSETS (-3.7%)............. (2,340)
-------
NET ASSETS (100%)......................................... $63,096
=======
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
(b) -- Security valued at fair value -- see note A-1 to
financial statements.
(c) -- 144A Security -- Certain conditions for public sale may
exist
ADR -- American Depositary Receipt
CPO -- Certificate of Participation
GDR -- Global Depositary Receipt
GDS -- Global Depositary Shares
</TABLE>
- ----------------------------------------------------------------
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------- ------- ----------
<S> <C> <C>
Services.......................... $29,030 46.0%
Energy............................ 9,257 14.7
Consumer Goods.................... 9,248 14.7
Materials......................... 7,414 11.8
Finance........................... 4,510 7.1
Multi-Industry.................... 2,174 3.4
Capital Equipment................. 643 1.0
------- ----
$62,276 98.7%
======= ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-135
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
ASSETS:
Investments in Securities, at Value (Cost $64,121)........ $ 65,308
Foreign Currency (Cost $127).............................. 128
Receivable for:
Investments Sold........................................ 1,092
Dividends............................................... 260
Fund Shares Sold........................................ 59
Foreign Witholding Tax Reclaim.......................... 3
Other..................................................... 4
--------
Total Assets............................................ 66,854
--------
LIABILITIES:
Payable for:
Investments Purchased................................... 3,391
Fund Shares Redeemed.................................... 94
Distribution Fees....................................... 66
Custody Fees............................................ 59
Investment Advisory Fees................................ 49
Professional Fees....................................... 27
Transfer Agent Fees..................................... 17
Shareholder Reporting Expenses.......................... 16
Administrative Fees..................................... 13
Directors' Fees and Expenses............................ 13
Deferred Country Tax.................................... 6
Other..................................................... 7
--------
Total Liabilities....................................... 3,758
--------
NET ASSETS.................................................. $ 63,096
========
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 6
Paid in Capital in Excess of Par.......................... 90,512
Net Unrealized Appreciation on Investments and Foreign
Currency Translations................................... 1,156
Distributions in Excess of Net Investment Income.......... (158)
Accumulated Net Realized Loss............................. (28,420)
--------
NET ASSETS.................................................. $ 63,096
========
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $34,139,111 and 2,957,664 Shares
Outstanding)............................................ $ 11.54
========
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100/ (100 - maximum sales charge)).............. $ 12.24
========
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $18,569,829 and 1,659,653 Shares
Outstanding)*........................................... $ 11.19
========
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $10,387,176 and 928,886 Shares
Outstanding)*........................................... $ 11.18
========
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-136
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 1,694
Interest.................................................. 121
Less Foreign Taxes Withheld............................... (10)
--------
Total Income............................................. 1,805
--------
EXPENSES:
Investment Advisory Fees.................................. 710
Distribution Fees (Attributed to Classes A, B, and C of
$75, $169, and $96, respectively)....................... 340
Administrative Fees....................................... 161
Custodian Fees............................................ 117
Country Tax Expense....................................... 60
Shareholder Reports....................................... 57
Transfer Agent Fees....................................... 53
Professional Fees......................................... 37
Filing and Registration Fees.............................. 33
Directors' Fees and Expenses.............................. 9
Amortization of Organizational Costs...................... 3
Other..................................................... 9
--------
Total Expenses........................................... 1,589
Less Expense Reductions.................................. (137)
--------
Net Expenses............................................. 1,452
--------
Net Investment Income/Loss.................................. 353
--------
NET REALIZED GAIN/LOSS ON:
Investments............................................... (18,585)
Foreign Currency Transactions............................. (111)
--------
Net Realized Gain/Loss.................................. (18,696)
--------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... (13,340)
--------
End of the Period:
Investments............................................. 1,187
Foreign Currency Translations........................... (31)
--------
1,156
--------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 14,496
--------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. (4,200)
--------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ (3,847)
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-137
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ 353 $ (380)
Net Realized Gain/Loss.................................... (18,696) 4,576
Net Unrealized Appreciation/Depreciation.................. 14,496 (27,206)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. (3,847) (23,010)
------------- -------------
DISTRIBUTIONS:
Net Investment Income:
Class A................................................... (120) --
Class B................................................... (17) --
Class C................................................... (10) --
In Excess of Net Investment Income:
Class A................................................... (182) --
Class B................................................... (26) --
Class C................................................... (15) --
------------- -------------
(370) --
------------- -------------
Net Realized Gain:
Class A................................................... -- (7,513)
Class B................................................... -- (3,444)
Class C................................................... -- (2,645)
In Excess of Net Realized Gain:
Class A................................................... (153) (5,098)
Class B................................................... (100) (2,337)
Class C................................................... (57) (1,795)
------------- -------------
(310) (22,832)
------------- -------------
Net Decrease in Net Assets Resulting from Distributions... (680) (22,832)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 37,085 115,672
Distributions Reinvested.................................. 580 20,476
Redeemed.................................................. (53,264) (126,144)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... (15,599) 10,004
------------- -------------
Total Increase/Decrease in Net Assets..................... (20,126) (35,838)
NET ASSETS--Beginning of Period............................. 83,222 119,060
------------- -------------
NET ASSETS--End of Period (Including distributions in excess
of net investment income of $(158) and $(95),
respectively)............................................. $ 63,096 $ 83,222
============= =============
- -----------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) Class A:
---------
Shares:
Subscribed............................................. 2,939 4,455
Distributions Reinvested............................... 46 920
Redeemed............................................... (3,917) (6,340)
------------- -------------
Net Increase/Decrease in Class A Shares Outstanding...... (932) (965)
============= =============
Dollars:
Subscribed............................................. $ 28,926 $ 72,239
Distributions Reinvested............................... 389 11,506
Redeemed............................................... (37,394) (98,189)
------------- -------------
Net Increase/Decrease.................................... $ (8,079) $ (14,444)
============= =============
Ending Paid in Capital................................... $ 46,039+ $ 54,118
============= =============
Class B:
---------
Shares:
Subscribed............................................. 386 1,661
Distributions Reinvested............................... 15 443
Redeemed............................................... (936) (752)
------------- -------------
Net Increase/Decrease in Class B Shares Outstanding...... (535) 1,352
============= =============
Dollars:
Subscribed............................................. $ 3,651 $ 26,168
Distributions Reinvested............................... 124 5,380
Redeemed............................................... (8,006) (10,163)
------------- -------------
Net Increase/Decrease.................................... $ (4,231) $ 21,385
============= =============
Ending Paid in Capital................................... $ 29,066+ $ 33,297
============= =============
Class C:
---------
Shares:
Subscribed............................................. 508 1,071
Distributions Reinvested............................... 8 296
Redeemed............................................... (908) (1,242)
------------- -------------
Net Increase/Decrease in Class C Shares Outstanding...... (392) 125
============= =============
Dollars:
Subscribed............................................. $ 4,508 $ 17,265
Distributions Reinvested............................... 67 3,590
Redeemed............................................... (7,864) (17,792)
------------- -------------
Net Increase/Decrease.................................... $ (3,289) $ 3,063
============= =============
Ending Paid in Capital................................... $ 15,478+ $ 18,767
============= =============
</TABLE>
--------------------
+ Ending Paid in Capital amounts do not reflect permanent book to tax
differences.
The accompanying notes are an integral part of the financial statements.
F-138
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------- JULY 6, 1994* TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 JUNE 30, 1995
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD............................ $11.424 $ 17.39 $ 12.63 $ 9.08 $ 12.00
------- ------- ------- ------- --------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss........ 0.093 (0.01) 0.02 0.10 (0.02)
Net Realized and Unrealized Gain/
Loss............................ 0.182 (2.73) 6.46 3.47 (2.70)
------- ------- ------- ------- --------------
Total From Investment
Operations...................... 0.275 (2.74) 6.48 3.57 (2.72)
------- ------- ------- ------- --------------
DISTRIBUTIONS
Net Investment Income............. (0.041) -- -- (0.02) --
In Excess of Net Investment
Income.......................... (0.063) -- (0.09) -- --
Net Realized Gain................. -- (1.92) (1.63) -- --
In Excess of Net Realized Gain.... (0.052) (1.31) -- -- --
Return of Capital................. -- -- -- -- (0.20)
------- ------- ------- ------- --------------
Total Distributions............... (0.156) (3.23) (1.72) (0.02) (0.20)
------- ------- ------- ------- --------------
NET ASSET VALUE, END OF PERIOD...... $11.543 $ 11.42 $ 17.39 $ 12.63 $ 9.08
======= ======= ======= ======= ==============
TOTAL RETURN (1).................... 3.00% (17.37)% 57.32% 39.35% (23.07)%**
======= ======= ======= ======= ==============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)... $34,139 $44,439 $84,401 $18,701 $ 7,658
Ratio of Expenses to Average Net
Assets............................ 2.20% 2.25% 2.24% 2.11% 2.46%
Ratio of Net Investment Income/Loss
to Average Net Assets............. 0.98% (0.09)% (0.08)% 1.18% (0.44)%
Portfolio Turnover Rate............. 163% 249% 241% 131% 107%**
- --------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation
During the Period
Per Share Benefit to Net
Investment Income/Loss.......... $ 0.02 $ 0.02 $ 0.10 $ 0.09 $ 0.13
Ratios Before Expense Limitation:
Expenses to Average Net Assets.... 2.44% 2.41% 2.77% 3.28% 4.30%
Net Investment Income/Loss to
Average Net Assets.............. 0.74% (0.24)% (0.61)% 0.01% (2.26)%
Ratio of Expenses to Average Net
Assets excluding country tax
expense and interest expense...... 2.10% 2.10% 2.10% 2.10% 2.10%
- --------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
---------------------------------------------------
YEAR ENDED JUNE 30,
----------------------------- AUGUST 1, 1995+ TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 JUNE 30, 1996
<S> <C> <C> <C> <C>
- ------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD............................ $11.030 $ 16.99 $ 12.45 $ 9.58
------- ------- ------- -----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss........ 0.019 (0.08) (0.03) 0.03
Net Realized and Unrealized Gain/
Loss............................ 0.215 (2.65) 6.28 2.84
------- ------- ------- -----------------
Total From Investment
Operations...................... 0.234 (2.73) 6.25 2.87
------- ------- ------- -----------------
DISTRIBUTIONS
Net Investment Income............. (0.009) -- -- --
In Excess of Net Investment
Income.......................... (0.014) -- (0.08) --
Net Realized Gain................. -- (1.92) (1.63) --
In Excess of Net Realized Gain.... (0.052) (1.31) -- --
Return of Capital................. -- -- -- --
------- ------- ------- -----------------
Total Distributions............... (0.075) (3.23) (1.71) --
------- ------- ------- -----------------
NET ASSET VALUE, END OF PERIOD...... $11.189 $ 11.03 $ 16.99 $ 12.45
======= ======= ======= =================
TOTAL RETURN (1).................... 2.47% (17.82)% 56.17% 29.26%**
======= ======= ======= =================
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)... $18,570 $24,206 $14,314 $ 2,041
Ratio of Expenses to Average Net
Assets............................ 2.96% 2.99% 2.99% 2.87%
Ratio of Net Investment Income/Loss
to Average Net Assets............. 0.20% (0.58)% (0.78)% 0.88%
Portfolio Turnover Rate............. 163% 249% 241% 131%**
- --------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation
During the Period
Per Share Benefit to Net
Investment Income/Loss.......... $ 0.02 $ 0.02 $ 0.02 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets.... 3.20% 3.16% 3.55% 3.89%
Net Investment Income/Loss to
Average Net Assets.............. (0.04)% (0.73)% (1.34)% (0.14)%
Ratio of Expenses to Average Net
Assets excluding country tax
expense and interest expense...... 2.85% 2.85% 2.85% 2.85%
- --------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations.
** Non-Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-139
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
FINANCIAL HIGHLIGHTS (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------------------- JULY 6, 1994* TO
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 JUNE 30, 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD................... $11.037 $ 17.01 $ 12.43 $ 8.99 $ 12.00
------- ------- ------- ------ --------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss........................... 0.021 (0.11) (0.07) 0.04 (0.08)
Net Realized and Unrealized Gain/Loss................ 0.199 (2.63) 6.31 3.40 (2.73)
------- ------- ------- ------ --------------
Total From Investment Operations..................... 0.220 (2.74) 6.24 3.44 (2.81)
------- ------- ------- ------ --------------
DISTRIBUTIONS
Net Investment Income................................ (0.009) -- -- -- --
In Excess of Net Investment Income................... (0.014) -- (0.03) -- --
Net Realized Gain.................................... -- (1.92) (1.63) -- --
In Excess of Net Realized Gain....................... (0.052) (1.31) -- -- --
Return of Capital.................................... -- -- -- -- (0.20)
------- ------- ------- ------ --------------
Total Distributions.................................. (0.075) (3.23) (1.66) -- (0.20)
------- ------- ------- ------ --------------
NET ASSET VALUE, END OF PERIOD......................... $11.182 $ 11.04 $ 17.01 $12.43 $ 8.99
======= ======= ======= ====== ==============
TOTAL RETURN (1)....................................... 2.28% (17.86)% 56.04% 38.26% (23.83)%**
======= ======= ======= ====== ==============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)...................... $10,387 $14,577 $20,345 $6,780 $ 4,085
Ratio of Expenses to Average Net Assets................ 2.96% 3.00% 2.99% 2.86% 3.20%
Ratio of Net Investment Income/Loss to Average Net
Assets............................................... 0.23% (0.77)% (0.79)% 0.42% (1.16)%
Portfolio Turnover Rate................................ 163% 249% 241% 131% 107%**
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the
Period
Per Share Benefit to Net Investment Income/Loss...... $ 0.02 $ 0.02 $ 0.05 $ 0.12 $ 0.12
Ratios Before Expense Limitation:
Expenses to Average Net Assets....................... 3.20% 3.16% 3.56% 4.06% 5.20%
Net Investment Income/Loss to Average Net Assets..... (0.01)% (0.93)% (1.36)% (0.78)% (3.16)%
Ratio of Expenses to Average Net Assets excluding
country tax expense and interest expense............. 2.85% 2.85% 2.85% 2.85% 2.85%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations.
** Non-Annualized
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-140
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Latin American Fund (the "Fund") is organized as a separate
non-diversified fund of Van Kampen Series Fund, Inc., a Maryland Corporation
which is registered as an open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective
seeks long-term capital appreciation by investing primarily in equity securities
of Latin American issuers and investing in debt securities issued or guaranteed
by Latin American governments or governmental entities. The Fund commenced
operations on July 6, 1994.
The Fund currently offers three classes of shares, Class A, Class B, and Class C
shares. Class A shares are sold with a front-end sales charge of up to 5.75%.
For certain purchases of Class A shares, the front-end sales charge may be
waived and a contingent deferred sales charge of 1.00% imposed in the event of
certain redemptions within one year of the purchase. Class B and Class C shares
are offered without a front end sales charge, but are subject to a contingent
deferred sales charge ("CDSC"). Class B shares will automatically convert to
Class A shares after the eighth year following purchase. The CDSC will be
imposed on most redemptions made within five years of the purchase for Class B
shares and one year of the purchase for Class C shares as detailed in the
following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First....................................... 5.00% 1.00%
Second...................................... 4.00% None
Third....................................... 3.00% None
Fourth...................................... 2.50% None
Fifth....................................... 1.50% None
Thereafter.................................. None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights. The Fund began offering the current Class B shares on August 1,
1995. Class B shares held prior to May 1, 1995 were renamed Class C shares.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the current bid and asked prices obtained from reputable
brokers. Debt securities purchased with remaining maturities of 60 days or less
are valued at amortized cost, if it approximates market value. All other
securities and assets for which market values are not readily available are
valued at fair value as determined in good faith by the Board of Directors,
although the actual calculations may be done by others.
2. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date, net
of applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on an accrual basis except where
collection is in doubt. Income, expenses (other than class specific expenses),
and realized and unrealized gains or losses are allocated to each class of
shares based upon their relative net assets. Distributions from the Fund are
recorded on the ex-distribution date.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices. Purchases and sales of portfolio securities are translated at the
rate of exchange prevailing when such securities were purchased or sold. Income
and expenses are translated at rates prevailing when accrued. Realized and
unrealized gains and losses on securities are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and losses on foreign currency includes the net
realized amount from the sale of the currency and the amount realized between
trade date and settlement date on security and income transactions. However, the
foreign currency portion
F-141
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
of gains and losses realized on sales and maturities of foreign denominated debt
securities is treated as ordinary income for U.S. Federal income tax purposes.
The net assets of the Fund include issuers located in emerging markets. There
are certain risks inherent in these investments not typically associated with
investments in the United States, including the smaller size of the markets
themselves, lesser liquidity, greater volatility and potentially less publicly
available information. Emerging markets may be subject to a greater degree of
government involvement in the economy and greater economic and political
uncertainty, which has the potential to extend to government imposed
restrictions on exchange traded transactions and currency transactions. These
restrictions may impact the Fund's ability to buy or sell certain securities or
to repatriate certain currencies to U.S. dollars. Additionally, changes in
currency exchange rates will affect the value of and investment income from such
securities
5. ORGANIZATIONAL COSTS: The organizational costs of the Fund are being
amortized on a straight line basis over a period of five years beginning with
the Fund's commencement of operations. The Adviser has agreed that in the event
any of the initial shares of the Fund originally purchased by Van Kampen are
redeemed by the Fund during the amortization period, the Fund will be reimbursed
for any unamortized organizational costs in the same proportion as the number of
shares redeemed bears to the number of initial shares held at the time of
redemption.
6. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such
taxes are generally based on income earned or gains realized or repatriated.
Taxes are accrued and applied to net investment income, net realized capital
gains, and net unrealized appreciation, as applicable, as the income is earned
or capital gains are recorded.
At June 30, 1999, the Fund had a capital loss carryforward for U.S. Federal
income tax purposes of approximately $16,568,000 which will expire June 30,
2007.
To the extent that capital loss carryforwards are used to offset any future net
capital gains realized during the carryforward period as provided by U.S.
Federal income tax regulations, no capital gains tax liability will be incurred
by the Fund for gains realized and not distributed. To the extent that capital
gains are so offset, such gains will not be distributed to shareholders.
Net capital and net currency losses incurred after October 31 and within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. For the period from November 1, 1998 to June 30, 1999 the Fund
incurred and elected to defer until July 1, 1999, for U.S. Federal income tax
purposes, net currency and capital losses of approximately $6,068,000.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- ------- -------- -------- -------------
<S> <C> <C> <C>
$70,009 $7,722 $(12,423) $(4,701)
</TABLE>
7. DISTRIBUTION OF INCOME AND GAINS: The amount and the character of income and
capital gain distributions to be paid by the Fund are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing book and
tax treatment for foreign currency transactions, net operating losses, foreign
taxes on net realized gains, deductibility of interest expense on short sales
and gains on certain securities of corporations designated as "passive foreign
investment companies."
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss and paid in capital in excess of par. For the
year ended June 30, 1999, approximately $65,000 has been reclassified from paid
in capital in excess of par and approximately $46,000 has been reclassified from
distributions in excess of net investment income, totaling $111,000 posted to
accumulated net realized loss.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., provide the Fund with investment advisory services at a fee
paid monthly and calculated at the annual rates based on average daily net
assets as indicated below. The Adviser has agreed to reduce advisory fees
payable to it and to reimburse the Fund, if necessary, if the annual operating
expenses, as defined, expressed as a percentage of average daily net assets,
exceed the maximum ratios indicated as follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
ADVISORY MAX. OPERATING MAX. OPERATING
FEE EXPENSE RATIO EXPENSE RATIO
- -------- -------------- --------------
<S> <C> <C>
1.25% 2.10% 2.85%
</TABLE>
F-142
<PAGE>
VAN KAMPEN LATIN AMERICAN FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$2,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides the
Fund with administrative services pursuant to an administrative agreement for a
monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the portfolio, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $98,029 for Class A shares and deferred sales charges of $105,678 and
$13,387 for Class B shares and Class C shares, respectively.
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Trust Company ("MSTC"), a former affiliate of the
Subadvisers. Through September 30, 1998, the Fund incurred MSTC fees of
approximately $20,000. On October 1, 1998, the Chase Manhattan Bank purchased
MSTC.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
During the year ended June 30, 1999, the Fund incurred approximately $8,000 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/ dealer.
D. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $89,489,000 and sales of approximately $102,312,000
of investment securities other than long-term U.S. government securities and
short-term investments. There were no purchases or sales of long-term U.S.
government securities.
F-143
<PAGE>
VAN KAMPEN VALUE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Value Fund (the "Fund",
a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the results of its
operations, the changes in its net assets and the financial highlights for each
of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1999 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-144
<PAGE>
VAN KAMPEN VALUE FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------------------
COMMON STOCKS (99.5%)
CAPITAL EQUIPMENT (18.3%)
CHEMICALS--DIVERSIFIED (2.1%)
Eastman Chemical Co.................... 5,800 $ 300
Lubrizol Corp.......................... 127,400 3,472
Rohm & Haas Co......................... 33,380 1,431
--------
5,203
--------
CONSTRUCTION & HOUSING (1.2%)
Owens Corning.......................... 89,020 3,060
--------
ELECTRICAL & ELECTRONICS (0.5%)
Entergy Corp........................... 44,090 1,378
--------
ELECTRONIC COMPONENTS--MISCELLANEOUS (2.6%)
(a)Arrow Electronics, Inc.............. 98,460 1,871
Avnet, Inc............................. 43,500 2,023
Tektronix, Inc......................... 90,310 2,726
--------
6,620
--------
ENERGY EQUIPMENT & SERVICES (1.6%)
GTE Corp............................... 38,000 2,878
Peco Energy Co......................... 27,200 1,139
--------
4,017
--------
MACHINERY & ENGINEERING (6.3%)
Case Corp.............................. 78,100 3,758
Cummins Engine Co., Inc................ 118,000 6,741
Deere & Co............................. 300 12
Kennametal, Inc........................ 53,250 1,651
Parker-Hannifin Corp................... 83,125 3,803
--------
15,965
--------
MANUFACTURING (3.6%)
Eaton Corp............................. 29,400 2,705
(a)FMC Corp............................ 49,310 3,368
Tecumseh Products Co. 'A'.............. 48,570 2,942
--------
9,015
--------
PROFESSIONAL SERVICES (0.4%)
Olsten Corp............................ 141,370 892
--------
TOTAL CAPITAL EQUIPMENT................................ 46,150
--------
CONSUMER PRODUCTS--MISCELLANEOUS (28.5%)
APPLIANCES & HOUSEHOLD DURABLES (1.1%)
Whirlpool Corp......................... 37,600 2,782
--------
AUTOMOBILES (10.9%)
Dana Corp.............................. 80,890 3,726
Ford Motor Co.......................... 114,130 6,441
General Motors Corp.................... 157,580 10,400
Goodyear Tire & Rubber Co.............. 20,000 1,176
(a)Navistar International Corp......... 45,900 2,295
TRW, Inc............................... 62,860 3,450
--------
27,488
--------
COMPUTERS/SOFTWARE (8.2%)
First Data Corp........................ 96,200 4,708
Intel Corp............................. 43,800 2,606
International Business Machines
Corp................................. 63,400 8,194
(a)Quantum Corp........................ 214,000 5,163
--------
20,671
--------
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
RECREATION, OTHER CONSUMER GOODS (0.3%)
Standard Register Co................... 26,670 $ 820
--------
RETAIL--MAJOR DEPARTMENT STORES (3.0%)
Dillards, Inc. 'A'..................... 55,020 1,933
Sears, Roebuck & Co.................... 52,500 2,339
(a)Toys 'R' Us, Inc.................... 154,440 3,195
--------
7,467
--------
TEXTILES & APPAREL (4.6%)
Liz Claiborne, Inc..................... 123,300 4,500
Springs Industries, Inc. 'A'........... 41,920 1,829
VF Corp................................ 126,140 5,392
--------
11,721
--------
TOBACCO (0.4%)
(a)R.J. Reynolds Tobacco
Holdings, Inc........................ 30,346 956
--------
TOTAL CONSUMER PRODUCTS--MISCELLANEOUS................. 71,905
--------
ENERGY (6.4%)
ELECTRIC--INTERGRATED (0.8%)
Cinergy Corp........................... 18,570 594
GPU, Inc............................... 34,940 1,474
--------
2,068
--------
OIL & GAS (3.8%)
Coastal Corp........................... 37,100 1,484
(a)Nabors Industries, Inc.............. 136,500 3,336
Tosco Corp............................. 44,200 1,146
Transocean Offshore, Inc............... 46,600 1,223
Ultramar Diamond Shamrock Corp......... 106,570 2,325
--------
9,514
--------
UTILITIES--ELECTRICAL & GAS (1.8%)
DTE Energy Co.......................... 43,280 1,731
Duke Power Co.......................... 22,100 1,202
Southern Co............................ 58,700 1,556
--------
4,489
--------
TOTAL ENERGY........................................... 16,071
--------
FINANCE (21.9%)
BANKING (6.6%)
Associates First Capital Corp. 'A'..... 2 --
Bank of America........................ 56,500 4,142
BankBoston Corp........................ 42,400 2,168
Chase Manhattan Corp................... 94,240 8,163
UnionBanCal Corp....................... 58,400 2,110
--------
16,583
--------
INSURANCE (7.2%)
ACE Ltd................................ 45,200 1,277
Allstate Corp.......................... 92,580 3,321
American General Corp.................. 22,640 1,706
Hartford Financial Services Group...... 59,540 3,472
Old Republic International Corp........ 86,105 1,491
Washington Mutual, Inc................. 192,450 6,808
--------
18,075
--------
LIFE/HEALTH INSURANCE (2.0%)
CIGNA Corp............................. 21,400 $ 1,905
Reliastar Financial Corp............... 70,280 3,075
--------
4,980
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-145
<PAGE>
VAN KAMPEN VALUE FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
REINSURANCE (0.8%)
Everest Reinsurance Holdings, Inc...... 66,210 2,160
--------
SUPER--REGIONAL BANKS--U.S. (5.3%)
Bank One Corp.......................... 65,800 3,919
First Union Corp. (N.C.)............... 40,589 1,908
KeyCorp................................ 74,500 2,393
PNC Bank Corp.......................... 89,400 5,152
--------
13,372
--------
TOTAL FINANCE.......................................... 55,170
--------
MATERIALS (6.7%)
CHEMICALS (4.7%)
Air Products & Chemicals, Inc.......... 42,500 1,711
Engelhard Corp......................... 160,100 3,622
IMC Global, Inc........................ 112,400 1,981
Solutia, Inc........................... 99,100 2,112
(a)W.R. Grace & Co..................... 127,300 2,339
--------
11,765
--------
METALS--STEEL (0.8%)
Ryerson Tull, Inc...................... 85,700 1,934
--------
TELECOMMUNICATIONS EQUIPMENT (1.2%)
U.S. West, Inc......................... 53,700 3,155
--------
TOTAL MATERIALS........................................ 16,854
--------
SERVICES (17.7%)
BUSINESS & PUBLIC SERVICES (1.0%)
Service Corp. International............ 135,500 2,608
--------
FOOD--MISCELLANEOUS/DIVERSIFIED (2.7%)
IBP, Inc............................... 63,310 1,504
Nabisco Group Holdings Corp............ 156,340 3,058
Universal Foods Corp................... 111,820 2,362
--------
6,924
--------
HEALTHCARE SUPPLIES & SERVICES (7.2%)
Beckman Coulter, Inc................... 60,030 2,919
Columbia HCA/Healthcare Corp........... 63,770 1,455
(a)Foundation Health Systems 'A'....... 78,000 1,170
(a)HEALTHSOUTH Corp.................... 418,000 6,244
(a)LifePoint Hospitals, Inc............ 4,761 64
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
(a)Tenet Healthcare Corp............... 155,400 $ 2,885
(a)Triad Hospitals, Inc................ 4,761 64
United HealthCare Corp................. 51,500 3,225
--------
18,026
--------
TELECOMMUNICATIONS (3.8%)
(a)AMR Corp............................ 74,980 5,117
Bell Atlantic Corp..................... 66,700 4,361
--------
9,478
--------
TRANSPORTATION--AIRLINES (1.9%)
CNF Transportation, Inc................ 30,800 1,182
Delta Airlines, Inc.................... 64,100 3,694
--------
4,876
--------
TRANSPORTATION--RAIL (0.5%)
Burlington Northern Railroad Co........ 40,300 1,249
--------
TRANSPORTATION--TRUCKING (0.6%)
Ryder Systems, Inc..................... 60,800 1,581
--------
TOTAL SERVICES......................................... 44,742
--------
TOTAL LONG-TERM INVESTMENTS (99.5%) (COST $233,558).... 250,892
--------
<CAPTION>
PAR
VALUE
(000)
--------
SHORT-TERM INVESTMENT (3.3%)
<S> <C> <C>
REPURCHASE AGREEMENT (3.3%)
Chase Securities, Inc., 4.55%, dated $ 8,469
6/30/99, due 7/1/99, to be repurchased at
$8,470, collaterized by $7,040 U.S.
Treasury Bonds, 11.125%, due 8/15/03,
valued at $8,693 (COST $8,469)................... 8,469
--------
TOTAL INVESTMENTS (102.8%) (COST $242,027)............... 259,361
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.8%)............ (7,104)
--------
NET ASSETS (100%)........................................ $252,257
========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) -- Non-income producing security
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-146
<PAGE>
VAN KAMPEN VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
ASSETS:
Investments at Value (Cost $242,027)...................... $259,361
Receivable for:
Investments Sold........................................ 1,619
Fund Shares Sold........................................ 351
Dividends............................................... 205
Interest................................................ 1
Deferred Organizational Costs............................. 4
Other Assets.............................................. 12
--------
Total Assets.......................................... 261,553
--------
LIABILITIES:
Payable for:
Investments Purchased................................... 7,881
Fund Shares Redeemed.................................... 786
Distribution Fees....................................... 303
Investment Advisory Fees................................ 133
Administrative Fees..................................... 52
Transfer Agent Fees..................................... 41
Professional Fees....................................... 34
Shareholder Reporting Expenses.......................... 29
Directors' Fees and Expenses............................ 20
Custody Fees............................................ 9
Other..................................................... 8
--------
Total Liabilities..................................... 9,296
--------
NET ASSETS.................................................. $252,257
========
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 23
Paid in Capital in Excess of Par.......................... 244,212
Unrealized Appreciation on Investments.................... 17,334
Distributions in Excess of Net Investment Income.......... (1)
Accumulated Net Realized Loss............................. (9,311)
--------
NET ASSETS................................................ $252,257
========
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $95,207,962 and 8,747,187 Shares
Outstanding)............................................ $ 10.88
========
Maximum Sales Charge...................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100 / (100 - maximum sales charge))............. $ 11.54
========
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $127,977,872 and 11,807,261 Shares
Outstanding)*........................................... $ 10.84
========
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $29,071,184 and 2,683,913 Shares
Outstanding)*........................................... $ 10.83
========
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-147
<PAGE>
VAN KAMPEN VALUE FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- -------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................. $ 4,804
Interest.................................................. 984
-------
Total Income............................................. 5,788
-------
EXPENSES:
Investment Advisory Fees.................................. 2,131
Distribution Fees (Attributed to Classes A, B, and C of
$270, $1,279, and $306, respectively)................... 1,855
Administrative Fees....................................... 672
Transfer Agent Fees....................................... 140
Shareholder Reports....................................... 78
Professional Fees......................................... 59
Filing and Registration Fees.............................. 56
Custodian Fees............................................ 56
Directors' Fees and Expenses.............................. 15
Amortization of Organizational Costs...................... 2
Other..................................................... 9
-------
Total Expenses........................................... 5,073
Less Expense Reductions.................................. (43)
-------
Net Expenses............................................. 5,030
-------
Net Investment Income/Loss.................................. 758
-------
NET REALIZED GAIN/LOSS ON:
Investments............................................... (9,132)
-------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... 1,221
-------
End of the Period
Investments............................................. 17,334
-------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 16,113
-------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. 6,981
-------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $ 7,739
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-148
<PAGE>
VAN KAMPEN VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JULY 7, 1997* TO
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ 758 $ 1,260
Net Realized Gain/Loss.................................... (9,132) 5,893
Net Unrealized Appreciation /Depreciation................. 16,113 1,221
------------- --------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. 7,739 8,374
------------- --------------
DISTRIBUTIONS:
Net Investment Income:
Class A................................................... (601) (930)
Class B................................................... (91) (264)
Class C................................................... (23) (66)
In Excess of Net Investment Income:
Class A................................................... (1) (77)
Class B................................................... -- (22)
Class C................................................... -- (6)
------------- --------------
(716) (1,365)
------------- --------------
Net Realized Gain:
Class A................................................... -- (502)
Class B................................................... -- (431)
Class C................................................... -- (95)
In Excess of Net Realized Gain:
Class A................................................... (2,049) --
Class B................................................... (2,409) --
Class C................................................... (584) --
------------- --------------
(5,042) (1,028)
------------- --------------
Net Decrease in Net Assets Resulting from Distributions... (5,758) (2,393)
------------- --------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 63,721 354,369
Distributions Reinvested.................................. 5,042 2,140
Redeemed.................................................. (134,239) (49,738)
------------- --------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... (65,476) 306,771
------------- --------------
Total Increase/Decrease in Net Assets..................... (63,495) 312,752
NET ASSETS--Beginning of Period............................. 315,752 3,000
------------- --------------
NET ASSETS--End of Period (Including distributions in excess
of net investment income of $(1) and $(45),
respectively)............................................. $ 252,257 $ 315,752
============= ==============
- -------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (000):
(1) Class A:
----------
Shares:
Subscribed (Initial Shares of 100)..................... 2,585 16,264
Distributions Reinvested............................... 259 136
Redeemed............................................... (7,154) (3,343)
------------- --------------
Net Increase/Decrease in Class A Shares Outstanding...... (4,310) 13,057
============= ==============
Dollars:
Subscribed............................................. $ 24,777 $ 167,353
Distributions Reinvested............................... 2,427 1,393
Redeemed............................................... (69,185) (35,499)
------------- --------------
Net Increase/Decrease.................................... $ (41,981) $ 133,247
============= ==============
Ending Paid in Capital................................... $ 92,241+ $ 134,222
============= ==============
Class B:
----------
Shares:
Subscribed (Initial Shares of 100)..................... 3,052 14,654
Distributions Reinvested............................... 225 60
Redeemed............................................... (5,046) (1,138)
------------- --------------
Net Increase/Decrease in Class B Shares Outstanding...... (1,769) 13,576
============= ==============
Dollars:
Subscribed............................................. $ 29,487 $ 150,818
Distributions Reinvested............................... 2,115 607
Redeemed............................................... (48,333) (12,023)
------------- --------------
Net Increase/Decrease.................................... $ (16,731) $ 139,402
============= ==============
Ending Paid in Capital................................... $ 123,644+ $ 140,375
============= ==============
Class C:
----------
Shares:
Subscribed (Initial Shares of 100)..................... 988 3,584
Distributions Reinvested............................... 53 14
Redeemed............................................... (1,743) (212)
------------- --------------
Net Increase/Decrease in Class C Shares Outstanding...... (702) 3,386
============= ==============
Dollars:
Subscribed............................................. $ 9,457 $ 36,198
Distributions Reinvested............................... 500 140
Redeemed............................................... (16,721) (2,216)
------------- --------------
Net Increase/Decrease.................................... $ (6,764) $ 34,122
============= ==============
Ending Paid in Capital................................... $ 28,352+ $ 35,116
============= ==============
</TABLE>
- -----------------
<TABLE>
<S> <C>
* Commencement of operations
+ Ending Paid in Capital amounts do not reflect permanent book
to tax differences.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-149
<PAGE>
VAN KAMPEN VALUE FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
----------------------------------- ----------------------------------- ---------------
YEAR ENDED JULY 7, 1997* TO YEAR ENDED JULY 7, 1997* TO YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1999# JUNE 30, 1998# JUNE 30, 1999# JUNE 30, 1998# JUNE 30, 1999#
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 10.526 $ 10.00 $ 10.514 $ 10.00 $ 10.503
-------------- -------------- -------------- -------------- --------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss....... 0.072 0.11 (0.003) 0.03 (0.002)
Net Realized and Unrealized
Gain/Loss...................... 0.512 0.56 0.509 0.56 0.512
-------------- -------------- -------------- -------------- --------------
Total From Investment
Operations..................... 0.584 0.67 0.506 0.59 0.510
-------------- -------------- -------------- -------------- --------------
DISTRIBUTIONS
Net Investment Income............ (0.052) (0.08) (0.007) (0.03) (0.007)
In Excess of Net Investment
Income......................... (0.000)+ (0.01) -- (0.00)+ --
Net Realized Gain................ -- (0.05) -- (0.05) --
In Excess of Net Realized Gain... (0.174) -- (0.174) -- (0.174)
-------------- -------------- -------------- -------------- --------------
Total Distributions.............. (0.226) (0.14) (0.181) (0.08) (0.181)
-------------- -------------- -------------- -------------- --------------
NET ASSET VALUE, END OF PERIOD..... $ 10.884 $ 10.53 $ 10.839 $ 10.51 $ 10.832
============== ============== ============== ============== ==============
TOTAL RETURN (1)................... 5.83% 6.74%** 5.02% 6.01%** 5.13%
============== ============== ============== ============== ==============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's).......................... $ 95,208 $ 137,447 $ 127,978 $ 142,741 $ 29,071
Ratio of Expenses to Average Net
Assets........................... 1.45% 1.45% 2.20% 2.20% 2.20%
Ratio of Net Investment Income/Loss
to Average Net Assets............ 0.74% 1.02% (0.03)% 0.28% (0.02)%
Portfolio Turnover Rate............ 64% 38%** 64% 38%** 64%
- --------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss......... $ 0.00+ $ 0.01 $ 0.00+ $ 0.01 $ 0.00+
Ratios Before Expense Limitation:
Expenses to Average Net Assets... 1.48% 1.60% 2.23% 2.35% 2.23%
Net Investment Income/Loss to
Average Net Assets............. 0.73% 0.88% (0.05)% 0.14% (0.03)%
<CAPTION>
CLASS C
-----------------
JULY 7, 1997* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1998#
<S> <C>
- -----------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 10.00
--------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss....... 0.03
Net Realized and Unrealized
Gain/Loss...................... 0.55
--------------
Total From Investment
Operations..................... 0.58
--------------
DISTRIBUTIONS
Net Investment Income............ (0.03)
In Excess of Net Investment
Income......................... (0.00)+
Net Realized Gain................ (0.05)
In Excess of Net Realized Gain... --
--------------
Total Distributions.............. (0.08)
--------------
NET ASSET VALUE, END OF PERIOD..... $ 10.50
==============
TOTAL RETURN (1)................... 5.83%**
==============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's).......................... $ 35,564
Ratio of Expenses to Average Net
Assets........................... 2.20%
Ratio of Net Investment Income/Loss
to Average Net Assets............ 0.29%
Portfolio Turnover Rate............ 38%**
- --------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income/Loss......... $ 0.01
Ratios Before Expense Limitation:
Expenses to Average Net Assets... 2.35%
Net Investment Income/Loss to
Average Net Assets............. 0.15%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
** Non-Annualized
+ Amount is less than $0.01 per share.
(1) Total return is calculated exclusive of sales charges or
deferred sales charges.
# Changes per share are based upon monthly average shares
outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-150
<PAGE>
VAN KAMPEN VALUE FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Value Fund (the "Fund") is organized as a separate diversified
fund of Van Kampen Series Fund, Inc., a Maryland Corporation, which is
registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective seeks to
achieve above-average total return over a market cycle of three to five years,
consistent with reasonable risk. The Fund commenced operations on July 7, 1997.
The Fund currently offers three classes of shares, Class A, Class B, and
Class C shares. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge of 1.00% imposed in the event
of certain redemptions within one year of the purchase. Class B and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
----------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First..................................... 5.00% 1.00%
Second.................................... 4.00% None
Third..................................... 3.00% None
Fourth.................................... 2.50% None
Fifth..................................... 1.50% None
Thereafter................................ None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the current bid and asked prices obtained from reputable
brokers. Debt securities purchased with remaining maturities of 60 days or less
are valued at amortized cost, if it approximates market value. All other
securities and assets for which market values are not readily available are
valued at fair value as determined in good faith by the Board of Directors,
although the actual calculations may be done by others.
2. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements which are short-term investments in
which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt securities. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date.
Interest income is recognized on an accrual basis except where collection is in
doubt. Income, expenses (other than class specific expenses), and realized and
unrealized gains or losses are allocated to each class of shares based upon
their relative net assets. Distributions from the Fund are recorded on the
ex-distribution date.
4. ORGANIZATIONAL COSTS: The organizational costs of the Fund are being
amortized on a straight line basis over a period of five years beginning with
the Fund's commencement of operations. The Adviser has agreed that in the event
any of its initial shares of the Fund originally purchased by Van Kampen are
redeemed by the Fund during the amortization period, the Fund will be reimbursed
for any unamortized organization costs in the same proportion as the number of
shares redeemed bears to the number of initial shares held at the time of
redemption.
5. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
At June 30, 1999, the Fund had a capital loss carryforward for U.S. Federal
Income tax purposes of approximately $4,433,000 which will expire June 30, 2007.
To the extent that capital loss carryforwards are used to offset any future net
capital gains realized during the carryforward period as provided by U.S.
Federal income tax regulations, no capital gains tax liability will be incurred
by the Fund for
F-151
<PAGE>
VAN KAMPEN VALUE FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
gains realized and not distributed. To the extent that capital gains are so
offset, such gains will not be distributed to shareholders.
Net capital losses incurred after October 31 and within the taxable year are
deemed to arise on the first business day of the Fund's next taxable year. For
the period from November 1, 1998 to June 30, 1999 the Fund incurred and elected
to defer until July 1, 1999, for U.S. Federal income tax purposes, net capital
losses of approximately $1,606,000.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
- --------------------- -------- --------- -------------
<S> <C> <C> <C>
$245,340 $30,340 $(16,319) $14,021
</TABLE>
6. DISTRIBUTION OF INCOME AND GAINS: The amount and the character of income and
capital gain distributions to be paid by the Fund are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, and paid in capital. For the year ended
June 30, 1999, approximately $2,000 has been reclassified from paid in capital
and posted to accumulated net investment income/loss.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.), Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser") and Miller Anderson & Sherrerd LLP, wholly
owned subsidiaries of Morgan Stanley Dean Witter & Co., provide the Fund with
investment advisory services at a fee paid monthly and calculated at the annual
rates based on average daily net assets as indicated below. The Adviser has
agreed to reduce advisory fees payable to it and to reimburse the Fund, if
necessary, if the annual operating expenses, as defined, expressed as a
percentage of average daily net assets, exceed the maximum ratios indicated as
follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- --------------------- -------------- --------------
<S> <C> <C>
0.80% 1.45% 2.20%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$15,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides the
Fund with administrative services pursuant to an administrative agreement for a
monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the Fund, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $470,484 for Class A shares and deferred sales charges of $9,521,
$835,926, and $22,202 for Class A shares, Class B shares, and Class C shares,
respectively.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $158,329,000 and sales of approximately $186,083,000
of investment securities other than long-term U.S. government securities and
short-term investments. There were no purchases or sales of long-term U.S.
government securities.
F-152
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Van Kampen Series Fund, Inc.--
Van Kampen Worldwide High Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Worldwide High Income
Fund (the "Fund", a fund of Van Kampen Series Fund, Inc.) at June 30, 1999, the
results of its operations, the changes in its net assets and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Dr.
Chicago, Illinois 60601
August 6, 1999
F-153
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
CORPORATES BONDS & NOTES (51.6%)
ARGENTINA (3.3%)
$ (b)1,100 Cablevision S.A. 13.75%, 5/1/09.................. $ 1,004
ARP (b)6,292 CIA International Telecommunications, 10.375%,
8/1/04......................................... 4,940
$ (b)945 Multicanal S.A. 13.125%, 4/15/09................. 877
--------
6,821
--------
AUSTRALIA (0.7%)
895 Glencore Nickel Property Ltd. 9.00%, 12/1/14..... 770
745 Murrin Murrin Holdings 9.375%, 8/31/07........... 655
--------
1,425
--------
BRAZIL (1.8%)
(b,c)4,500 Banco Nacional Deseny Econ 13.64%, 6/16/08....... 3,780
--------
CANADA (1.6%)
(c)575 Husky Oil Ltd. 8.90%, 8/15/28.................... 553
400 Rogers Cablesystems Ltd. 10.125%, 9/1/12......... 432
865 Rogers Cablesystems Ltd., Series B, 10.00%,
3/15/05........................................ 932
605 Rogers Cantel, Inc. 8.30%, 10/1/07............... 597
250 Rogers Communications, Inc. 9.125%, 1/15/06...... 254
100 Rogers Communications, Inc. 8.875%, 7/15/07
Senior Notes................................... 101
315 Tembec Industries, Inc. 8.625%, 6/30/09.......... 313
--------
3,182
--------
CHILE (0.8%)
(b)1,650 Embotelladora Arica S.A. 9.875%, 3/15/06......... 1,681
--------
COLOMBIA (0.7%)
(d)2,000 Occidente Y Caribe 0.00%, 3/15/04................ 1,320
--------
INDIA (0.2%)
(b)400 Reliance Industries, Inc. 10.50%, 8/6/46......... 342
--------
INDONESIA (0.7%)
300 Indah Kiat International, Series B, 11.875%,
6/15/02........................................ 249
1,500 Tjiwi Kimia International B.V. 13.25%, 8/1/01.... 1,290
--------
1,539
--------
KOREA (0.4%)
(b)785 Samsung Electronics Co. 7.45%, 10/1/02........... 761
--------
LUXEMBOURG (0.2%)
EUR (b)486 Sirona Dental Systems 9.125%, 7/15/08............ 461
--------
MEXICO (4.2%)
$ (c)2,650 Petroleos Mexicanos 9.369%, 7/15/05.............. 2,481
(b)2,850 Petroleos Mexicanos 9.50%, 9/15/27............... 2,736
4,200 TV Azteca S.A. 10.125%, 2/15/04.................. 3,423
--------
8,640
--------
NETHERLANDS (1.4%)
975 Hermes Europe Railtel BV 11.50%, 8/15/07 Senior
Notes.......................................... 1,024
EUR 299 Impress Metal 9.875%, 5/29/07.................... 342
$ (d)730 PTC International Finance BV 0.00%, 7/1/07....... $ 539
EUR 875 Tele 1 Europe B.V. 13.00%, 5/15/09............... 936
--------
2,841
--------
PHILIPPINES (0.5%)
$ 1,300 Philippine Long Distance Telephone Co. 7.85%,
3/6/07......................................... 1,111
--------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
POLAND (1.5%)
(a,b,d)1,630 @Entertainment 0.00%, 2/1/09..................... 1,092
EUR 1,900 Netia Holdings 13.50%, 6/15/09................... 2,021
--------
3,113
--------
QUATAR (0.3%)
$ (b)725 Ras Laffan Liquid National Gas 8.294%, 3/15/14... 665
--------
TURKEY (1.2%)
2,440 Cellco Finance 15.00%, 8/1/05.................... 2,526
--------
UNITED KINGDOM (2.2%)
EUR 964 Colt Telecom Group plc 7.625%, 7/31/08........... 993
(d)940 Dolphin Telecommunications plc 0.00%, 6/1/08..... 480
$ (b,d)500 Dolphin Telecommunications plc 0.00%, 5/15/09.... 241
EUR 665 Esprit Telecommunication Group plc 11.00%,
6/15/08........................................ 734
$ 620 HMV Media Group, Inc. 10.875%, 5/15/08........... 1,014
EUR (d)1,611 RSL Communications plc 0.00%, 6/15/08............ 1,025
--------
4,487
--------
UNITED STATES (29.9%)
$ 205 Adelphia Communications, Series B, 7.50%,
1/15/04........................................ 196
800 Adelphia Communications, Series B, 9.875%,
3/1/07......................................... 834
600 Adelphia Communications, Series B, 8.375%,
2/1/08......................................... 577
1,125 AES Corp. 8.50%, 11/1/07......................... 1,059
725 American Cellular Corp. 10.50%, 5/15/08.......... 743
500 American Communications Lines LLC, `B', 10.25%,
6/30/08........................................ 501
EUR 1,150 American Standard Cos., Inc. 7.125%, 6/1/06...... 1,195
$ 885 AMSC Acquisition Co., Inc., Series B, 12.25%,
4/1/08......................................... 677
405 Axia, Inc. 10.75%, 7/15/08....................... 400
(b)932 CA FM Lease Trust 8.50%, 7/15/17................. 866
(b)535 Centennial Cellular Holdings 10.75%, 12/15/08.... 552
600 CEX Holdings, Inc., Series B, 9.625%, 6/1/08..... 564
350 Chancellor Media Corp. 9.00%, 10/1/08............ 355
1,365 Chancellor Media Corp., `B', 8.125%, 12/15/07.... 1,324
850 CMS Energy 7.50%, 1/15/09........................ 796
85 Columbia/HCA Healthcare, 8.13%, 8/4/03 MTN....... 84
425 Columbia/HCA Healthcare, 6.91%, 6/15/05.......... 393
1,325 Columbia/HCA Healthcare, 8.85%, 1/1/07 MTN....... 1,333
2,500 Columbia/HCA Healthcare, 7.69%, 6/15/25.......... 2,070
(d)1,025 Dial Call Communications, Series B, 10.25%,
12/15/05....................................... 1,045
660 Dobson Communications Corp. 11.75%, 4/15/07...... 693
970 D.R. Horton, Inc. 8.00%, 2/1/09.................. 912
762 DR Securitized Lease Trust, Series 1993-K1,
Class A1, 6.66%, 8/15/10....................... 709
$ 891 DR Securitized Lease Trust, Series 1994-K1,
Class A1, 7.60%, 8/15/07....................... $ 874
250 DR Securitized Lease Trust, Series 1994-K1,
Class A2, 8.375%, 8/15/15...................... 247
150 DR Structured Finance, Series 1994-K2, CMO,
9.35%, 8/15/19................................. 151
(b)1,050 Echostar DBS Corp. 9.375%, 2/1/09................ 1,067
(b)300 EES Coke Battery Co., Inc. 9.382%, 4/15/07....... 294
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-154
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
165 Entex Information Services 12.50%, 8/1/06........ 99
900 Fresenius Medical Capital Trust II 7.875%,
2/1/08......................................... 846
(b,d)500 Fuji JGB Investments LLC, Series A, 9.87%,
12/31/49....................................... 438
730 Global Crossing Holdings, Ltd. 9.625%, 5/15/08... 770
770 Globalstar LP/Capital 11.375%, 2/15/04........... 508
125 Globalstar LP/Capital 11.50%, 6/1/05............. 80
1,020 Harrahs Operating Co., Inc. 7.875%, 12/15/05..... 989
930 Hilton Hotels 7.95%, 4/15/07..................... 941
1,355 HMH Properties, Inc. Series A 7.875%, 8/1/05..... 1,280
(b)1,060 Horseshoe Gaming Holdings 8.652%, 5/15/09........ 1,026
950 Host Marriott Travel Plaza, Series B, 9.50%,
5/15/05........................................ 976
(b)1,175 Huntsman ICI Chemicals 10.125%, 7/1/09........... 1,179
EUR (b)1,150 Huntsman ICI Chemicals 10.125%, 7/1/09........... 1,192
$ (d)845 Hyperiom Telecommunications, 0.00%, 4/15/03...... 698
(d)2,765 Intermedia Communications, Series B, 0.00%,
7/15/07........................................ 1,974
815 Iridium LLC/Capital Corp., Series A 13.00%,
7/15/05........................................ 163
(b)300 Jet Equipment Trust, Series C-1, 11.79%,
6/15/13........................................ 372
(b)300 Jet Equipment Trust, Series 1995-D, 11.44%,
11/1/14........................................ 369
500 Kmart Funding Corp. 8.80%, 7/1/10................ 512
500 Mosaic RE Ltd., Class A, 9.60%, 7/9/99........... 500
500 Musicland Group, Inc. 9.00%, 6/15/03............. 485
950 Musicland Group, Inc. 9.875%, 3/15/08............ 931
490 National Steel Corp., Series D, 9.875%, 3/1/09... 497
(d,e)315 Nextel Communications, Inc. 9.75%, 8/15/04....... 320
(d)2,575 Nextel Communications, Inc. 0.00%, 9/15/07....... 1,880
(d)1,760 NEXTLINK Communications, Inc. 0.00%, 4/15/08..... 1,052
(d)990 Norcal Waste Systems 13.50%, 11/15/05............ 1,094
(b,d)1,100 Nortek, Inc. 8.875%, 8/1/08...................... 1,083
(b,f)525 NSM Steel Ltd., 12.25%, 2/1/08................... 1
GBP (d)1800 NTL, Inc. 0.00%, 4/1/08.......................... 1,920
$ (b)188 Oil Purchase Co. 7.10%, 4/30/02.................. 179
(b)735 OnePoint Communications Corp., 14.50%, 6/1/08.... 399
1,020 Outdoor Systems, Inc., 8.875%, 6/15/07........... 1,065
(b)500 Pacifica Papers, Inc. 10.00%, 3/15/09............ 515
970 Park Place Entertainment 7.875%, 12/15/05........ 921
700 Primus Telecommunications Group, Series B,
9.875%, 5/15/08................................ 664
(b)330 Primus Telecommunications Group, 11.25%,
1/15/09........................................ 335
515 PSINet, Inc., Series B, 10.00%, 2/15/05.......... 512
(d)1325 RCN Corp. 0.00%, 10/15/07........................ 888
(d)910 Rhythms Netconnections, Inc., Series B, 0.00%,
5/15/08........................................ 480
35 RSL Communications Ltd. 12.25%, 11/15/06......... 37
(b)740 RSL Communications Ltd. 9.125%, 3/1/08........... 679
$ (b)1,215 Samsung Electronics Co. 9.75%, 5/1/03............ $ 1,262
(b,d)425 SB Treasury Co. LLC 9.40%, 12/29/49.............. 413
800 SD Warren Co., Series B, 12.00%, 12/15/04........ 852
805 Smithfield Foods, Inc. 7.625%, 2/15/08........... 733
1,125 Snyder Oil Corp. 8.75%, 6/15/07.................. 1,108
960 Station Casinos, Inc. 10.125%, 3/15/06........... 990
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
985 Station Casinos, Inc. 9.75%, 4/15/07............. 1,005
(b)500 Tenet Healthcare Corp. 8.125%, 12/1/08........... 472
1,480 Tenet Healthcare Corp. 8.625%, 1/15/07........... 1,447
(d)1,900 Viatel, Inc., Series A, 0.00%, 4/15/08........... 1,221
450 Vintage Petroleum 8.625%, 2/1/09................. 430
(d)750 Wam!Net, Inc. 0.00%, 3/1/05...................... 443
--------
61,736
--------
TOTAL CORPORATES BONDS & NOTES.................................... 106,431
--------
ASSET BACKED SECURITIES (0.7%)
UNITED STATES (0.7%)
858 Commercial Financial Services, Inc.,
Series 1997-5, Class A1, 7.72%, 6/15/05........ 214
270 Long Beach Acceptance Auto Grantor Trust 1997-1,
Class B, 14.22%, 10/26/03...................... 268
922 OHA Grantor Trust, 11.00%, 9/15/03............... 918
--------
TOTAL ASSET BACKED SECURITIES..................................... 1,400
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.9%)
UNITED STATES (0.9%)
629 Aircraft Lease Portfolio Securitization Ltd.,
Series 1996-1, Class DX, 12.75%, 6/15/06....... 629
(b,c)36,368 DLJ Mortgage Acceptance Corp., Series 1997-CF2,
Class S, IO, 0.36%, 10/15/30................... 777
(b)535 Federal Mortgage Acceptance Corp.,
Series 1996-B, Class C, 7.883%, 11/15/18....... 407
--------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS......................... 1,813
--------
EUROBONDS (1.8%)
ARGENTINA (1.8%)
(c)4,269 Republic of Argentina, Series L, 5.938%,
3/31/05........................................ 3,650
--------
FOREIGN GOVERNMENT & AGENCY OBLIGATIONS (37.3%)
ARGENTINA (6.9%)
2,920 Bonos del Tesoro, Series BT02, 8.75%, 5/9/02..... 2,673
4,000 Republic of Argentina 12.125%, 2/15/19........... 3,640
8,690 Republic of Argentina 11.75%, 4/7/09............. 7,864
--------
14,177
--------
BRAZIL (9.4%)
3,319 Federated Republic of Brazil, `C' PIK, 8.00%,
4/15/14........................................ 2,165
(c)2,080 Federated Republic of Brazil Debt Conversion
Bond, Series Z-L, 5.938%, 4/15/12.............. 1,292
(c)6,289 Federative Republic of Brazil, Series EI-L,
5.875%, 4/15/06................................ 4,968
(c)2,400 Federated Republic of Brazil, Series NMB-L
5.938%, 4/15/09................................ 1,686
9,800 Federated Republic of Brazil 11.625%, 4/15/04.... 9,249
--------
19,360
--------
BULGARIA (2.5%)
(d)8,580 Bulgaria Front Loaded Interest Reduction Bond
2.50%, 7/28/12................................. 5,239
--------
CHILE (0.8%)
$ 1,725 ENDESA 7.75%, 7/15/08............................ $ 1,615
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-155
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
COLOMBIA (2.6%)
600 Republic of Colombia, Global Bond 10.875%,
3/9/04......................................... 576
(c)1,460 Republic of Colombia, 9.705%, 8/13/05............ 1,266
4,250 Republic of Colombia, 9.75%, 4/23/09............. 3,512
--------
5,354
--------
ECUADOR (0.3%)
(c)1,230 Republic of Ecuador Discount Bond 6.00%,
2/28/25........................................ 576
--------
JAMAICA (0.1%)
(b)300 Government of Jamaica 10.875%, 6/10/05........... 279
--------
JORDAN (0.4%)
(c)496 Government of Jordan 6.188%, 12/23/23............ 312
(b,c)828 Government of Jordan 6.188%, 12/23/23............ 522
--------
834
--------
MEXICO (7.9%)
12,100 United Mexican States 10.375%, 2/17/09........... 12,297
3,780 United Mexican States 11.375%, 9/15/16 Global
Bond........................................... 4,065
--------
16,362
--------
NIGERIA (0.4%)
(d)2,100 Government of Nigeria Promissory Notes 5.092%,
1/5/10......................................... 839
--------
PANAMA (1.4%)
1,950 Republic of Panama, 9.375%, 4/1/29............... 1,862
(d)1,305 Republic of Panama Past Due Interest, PIK 4.00%,
7/17/16........................................ 965
--------
2,827
--------
PERU (1.4%)
(b,d)3,950 Republic of Peru Front Loaded Interest Reduction
Bond 3.75%, 3/7/17............................. 2,188
(d)1,140 Republic of Peru Front Loaded Interest Reduction
Bond 3.75%, 3/7/17............................. 631
--------
2,819
--------
RUSSIA (2.0%)
(b)8,370 Government of Russia 11.00%, 7/24/18............. 4,206
--------
VENEZUELA (1.2%)
(c)3,238 Republic of Venezuela Discount Bond, Series L,
6.313%, 12/18/07............................... 2,511
--------
TOTAL FOREIGN GOVERNMENT & AGENCY OBLIGATIONS..................... 76,998
--------
LOAN AGREEMENTS (1.6%)
INDONESIA (0.4%)
(c)300 Republic of Indonesia Syndicated Loan 8.125%,
8/25/00........................................ 280
(c)500 Republic of Indonesia Syndicated Loan 8.375%,
8/25/01........................................ 440
(c)100 Republic of Indonesia Syndicated Loan 8.625%,
8/25/02........................................ 86
--------
806
--------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE VALUE
(000) (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
MOROCCO (1.2%)
$ (c)3,080 Kingdom of Morocco, Series A, 5.906%, 1/1/09..... $ 2,487
--------
TOTAL LOAN AGREEMENTS............................................. 3,293
--------
<CAPTION>
SHARES
------
<C> <S> <C>
PREFERRED STOCKS (0.9%)
UNITED STATES (0.9%)
(a)6,275 Concentric Network Corp. 13.50%.................. 593
(a)679 IXC Communications, Inc., PIK 12.50%............. 655
6,931 Paxson Communications 13.25%..................... 624
--------
TOTAL PREFERRED STOCKS............................................ 1,872
--------
<CAPTION>
NO. OF
WARRANTS
--------
<C> <S> <C>
WARRANTS (0.4%)
ARGENTINA (0.0%)
(a)4,750 Republic of Argentina, expiring 2/25/00.......... 5
--------
COLOMBIA (0.1%)
(a,b)80,000 Occidente Y Caribe, expiring 3/15/04............. 135
--------
POLAND (0.0%)
(a,b)6,520 @Entertainment, expiring 2/1/09.................. --
--------
UNITED STATES (0.3%)
(a,b)8,850 American Mobile Satellite Corp., expiring
4/1/08......................................... 32
(a,b)3,323,743 NSM Steel, Inc., expiring 2/1/08................. 4
(a,b)7,350 OnePoint Communications Corp., expiring 6/1/08... 1
(a,b)38,200 Rhythms Netconnections, Inc. expiring 5/15/08.... 550
(a,b)22,500 Wam!Net, Inc., expiring 3/1/05................... 51
--------
638
--------
TOTAL WARRANTS.................................................... 778
--------
TOTAL LONG-TERM INVESTMENTS (95.2%) (COST $199,335)............... 196,235
--------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE
(000)
<C> <S> <C>
- -------------------
SHORT-TERM INVESTMENTS (2.6%)
TREASURY BILLS (1.3%)
TRL(b)1,146,669,000 Republic of Turkey, Series 14T, 0.00%, 2/9/00.... 1,703
510,772,000 Republic of Turkey, Series 6B, 0.00%, 9/15/99.... 1,032
--------
2,735
--------
REPURCHASE AGREEMENT (1.3%)
$ 2,598 Chase Securities, Inc., 4.55%, dated 6/30/99,
due 7/1/99, to be repurchased at $2,598,
collateralized by $2,415 U.S. Treasury Bonds,
7.250% due 5/15/16, valued at $2,684........... 2,598
--------
TOTAL SHORT-TERM INVESTMENTS (2.6%) (COST $5,663)...................... 5,333
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-156
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
(000)
<C> <S> <C>
- ----------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $204,998) (97.8%)......................... $201,568
OTHER ASSETS IN EXCESS OF LIABILITIES (2.2%)...................... 4,567
--------
NET ASSETS (100%)................................................. $206,135
========
</TABLE>
- ---------------
(a) -- Non-income producing security
(b) -- 144A Security--Certain conditions for public sale may exist.
(c) -- Variable/floating rate security--rate disclosed is as of June 30,
1999.
(d) -- Step Bond--coupon rate increases in increments to maturity. Rate
disclosed is as of June 30, 1999. Maturity date disclosed is the
ultimate maturity date.
(e) -- Security out on collateral for outstanding futures contracts.
(f) -- Bond is in default.
ARP -- Argentine Peso
CMO -- Collaterized Mortgage Obligation
EUR -- Euro
GBP -- British Pound
IO -- Interest Only
PIK -- Payment-In-Kind. Income may be received in additional securities or
cash at the discretion of the issuer.
MTN -- Medium Term Note
TRL -- Turkish Lira
----------------------------------------------------------------
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------- -------- ----------
<S> <C> <C>
Foreign Government & Agency
Obligations...................... $ 76,998 37.4%
Telecommunications............... 30,924 15.0
Services......................... 18,115 8.8
Broadcast--Radio & Television.... 15,637 7.6
Multi-Industry................... 15,112 7.3
Finance.......................... 10,797 5.2
Materials........................ 5,243 2.5
Technology....................... 4,926 2.4
Eurobonds........................ 3,650 1.8
Utilities........................ 3,584 1.7
Loan Agreements.................. 3,293 1.6
Collateralized Mortgage
Obligations & Asset Backed
Securities....................... 3,213 1.6
Consumer Goods................... 2,807 1.4
Transportation................... 1,024 0.5
Capital Goods.................... 912 0.4
-------- ----
$196,235 95.2%
======== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-157
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
ASSETS:
Investments at Value (Cost $204,998)...................... $201,568
Margin Deposit on Futures................................. 199
Receivable for:
Interest................................................ 4,781
Investments Sold........................................ 2,710
Fund Shares Sold........................................ 328
Variation of Futures Contracts.......................... 33
Foreign Withholding Tax Reclaim......................... 19
Net Unrealized Gain on Foreign Currency Exchange
Contracts............................................... 271
Other..................................................... 9
--------
Total Assets............................................ 209,918
--------
LIABILITIES:
Payable for:
Dividends Declared...................................... 1,798
Bank Overdraft.......................................... 602
Investments Purchased................................... 496
Fund Shares Redeemed.................................... 293
Distribution Fees....................................... 284
Investment Advisory Fees................................ 127
Administrative Fees..................................... 43
Professional Fees....................................... 42
Transfer Agent Fees..................................... 35
Shareholder Reporting Expenses.......................... 23
Custody Fees............................................ 22
Directors' Fees and Expenses............................ 16
Other..................................................... 2
--------
Total Liabilities....................................... 3,783
--------
NET ASSETS.................................................. $206,135
========
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000).......................................... $ 21
Paid in Capital in Excess of Par.......................... 283,951
Accumulated Net Investment Income......................... 357
Net Unrealized Depreciation on Investments, Foreign
Currency Translations and Futures....................... (3,140)
Accumulated Net Realized Loss............................. (75,054)
--------
NET ASSETS.................................................. $206,135
========
CLASS A SHARES:
Net Asset Value and Redemption Price Per Share (Based on
Net Assets of $58,506,414 and 5,907,569 Shares
Outstanding)............................................ $ 9.90
========
Maximum Sales Charge...................................... 4.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100/ (100 - maximum sales charge)).............. $ 10.39
========
CLASS B SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $107,012,758 and 10,849,654 Shares
Outstanding)*........................................... $ 9.86
========
CLASS C SHARES:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $40,616,194 and 4,116,484 Shares
Outstanding)*........................................... $ 9.87
========
</TABLE>
- -------------
<TABLE>
<S> <C>
* Redemption price may be subject to a contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-158
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(000)
<S> <C>
- --------------------------------------------------------------------------
INVESTMENT INCOME:
Interest.................................................. $ 27,856
--------
EXPENSES:
Distribution Fees (Attributed to Classes A, B, and C of
$173, $1,158, and $468, respectively)................... 1,799
Investment Advisory Fees.................................. 1,743
Administrative Fees....................................... 585
Shareholder Reports....................................... 106
Custodian Fees............................................ 124
Transfer Agent Fees....................................... 108
Professional Fees......................................... 66
Filing and Registration Fees.............................. 44
Directors' Fees and Expenses.............................. 12
Other..................................................... 17
--------
Total Expenses.......................................... 4,604
--------
Net Investment Income/Loss.................................. 23,252
--------
NET REALIZED GAIN/LOSS ON:
Investments............................................... (75,324)
Foreign Currency Transactions............................. (393)
Futures................................................... 5
--------
Net Realized Gain/Loss.................................. (75,712)
--------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period................................... (14,693)
--------
End of the Period:
Investments............................................. (3,430)
Foreign Currency Translations........................... 257
Futures................................................. 33
--------
(3,140)
--------
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 11,553
--------
Net Realized Gain/Loss and Net Unrealized
Appreciation/Depreciation................................. (64,159)
--------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $(40,907)
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-159
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
(000) (000)
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss................................ $ 23,252 $ 19,591
Net Realized Gain/Loss.................................... (75,712) 12,018
Net Unrealized Appreciation/Depreciation.................. 11,553 (28,435)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from
Operations.............................................. (40,907) 3,174
------------- -------------
DISTRIBUTIONS:
Net Investment Income:
Class A................................................... (7,573) (6,930)
Class B................................................... (11,681) (8,313)
Class C................................................... (4,723) (3,852)
------------- -------------
(23,977) (19,095)
------------- -------------
Net Realized Gain:
Class A................................................... -- (6,907)
Class B................................................... -- (8,787)
Class C................................................... -- (4,230)
In Excess of Net Realized Gain:
Class A................................................... (42) --
Class B................................................... (70) --
Class C................................................... (29) --
------------- -------------
(141) (19,924)
------------- -------------
Net Decrease in Net Assets Resulting from Distributions... (24,118) (39,019)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed................................................ 83,177 226,529
Distributions Reinvested.................................. 13,759 25,615
Redeemed.................................................. (123,953) (114,610)
------------- -------------
Net Increase/Decrease in Net Assets Resulting from Capital
Share Transactions...................................... (27,017) 137,534
------------- -------------
Total Increase/Decrease in Net Assets..................... (92,042) 101,689
NET ASSETS--Beginning of Period............................. 298,177 196,488
------------- -------------
NET ASSETS--End of Period (Including accumulated net
investment income of $357 and $781, respectively)......... $ 206,135 $ 298,177
============= =============
- --------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
(1) CLASS A:
Shares:
Subscribed............................................. 3,413 6,811
Distributions Reinvested............................... 486 743
Redeemed............................................... (5,339) (5,569)
------------- -------------
Net Increase/Decrease in Class A Shares Outstanding...... (1,440) 1,985
============= =============
Dollars:
Subscribed............................................. $ 36,170 $ 93,959
Distributions Reinvested............................... 4,873 9,850
Redeemed............................................... (53,258) (77,161)
------------- -------------
Net Increase/Decrease.................................... $ (12,215) $ 26,648
============= =============
Ending Paid in Capital................................... $ 80,677+ $ 92,892
============= =============
CLASS B:
Shares:
Subscribed............................................. 3,007 7,464
Distributions Reinvested............................... 619 770
Redeemed............................................... (4,586) (1,939)
------------- -------------
Net Increase/Decrease in Class B Shares Outstanding...... (960) 6,295
============= =============
Dollars:
Subscribed............................................. $ 31,134 $ 101,066
Distributions Reinvested............................... 6,179 10,086
Redeemed............................................... (45,561) (26,325)
------------- -------------
Net Increase/Decrease.................................... $ (8,248) $ 84,827
============= =============
Ending Paid in Capital................................... $ 147,844+ $ 156,092
============= =============
CLASS C:
Shares:
Subscribed............................................. 1,545 2,312
Distributions Reinvested............................... 270 432
Redeemed............................................... (2,552) (825)
------------- -------------
Net Increase/Decrease in Class C Shares Outstanding...... (737) 1,919
============= =============
Dollars:
Subscribed............................................. $ 15,873 $ 31,504
Distributions Reinvested............................... 2,707 5,679
Redeemed............................................... (25,134) (11,124)
------------- -------------
Net Increase/Decrease.................................... $ (6,554) $ 26,059
============= =============
Ending Paid in Capital................................... $ 55,455+ $ 62,009
============= =============
</TABLE>
- ---------------
<TABLE>
<S> <C>
+ Ending Paid in Capital amounts do not reflect permanent book
to tax differences.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-160
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------
YEAR ENDED JUNE 30,
-------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $12.464 $ 14.26 $ 12.47 $ 11.57 $ 12.17
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss......... 1.062 1.15 1.25 1.36 1.26
Net Realized and Unrealized
Gain/Loss........................ (2.516) (0.67) 2.30 0.80 (0.52)
------- ------- ------- ------- -------
Total From Investment Operations... (1.454) 0.48 3.55 2.16 0.74
------- ------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income.............. (1.100) (1.09) (1.25) (1.26) (1.22)
Net Realized Gain.................. -- (1.19) (0.51) -- (0.12)
In Excess of Net Realized Gain..... (0.006) -- -- -- --
------- ------- ------- ------- -------
Total Distributions................ (1.106) (2.28) (1.76) (1.26) (1.34)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD....... $ 9.904 $ 12.46 $ 14.26 $ 12.47 $ 11.57
======= ======= ======= ======= =======
TOTAL RETURN (1)..................... (11.14)% 3.40% 30.29% 19.61% 6.87%
======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net assets, End of Period (000's).... $58,506 $91,579 $76,439 $41,493 $14,819
Ratio of Expenses to Average Net
Assets............................. 1.45% 1.45% 1.52% 1.55% 1.55%
Ratio of Net Investment Income/Loss
to Average Net Assets.............. 10.55% 8.36% 9.73% 11.95% 11.53%
Portfolio Turnover Rate.............. 121% 156% 157% 220% 178%
- -------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income/Loss...................... $ -- $ -- $ -- $ 0.02 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets..... -- -- -- 1.69% 1.97%
Net Investment Income/Loss to
Average Net Assets............... -- -- -- 11.81% 11.11%
- -------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
------------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------- AUGUST 1, 1995+
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 TO JUNE 30, 1996
<S> <C> <C> <C> <C>
- -------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $ 12.396 $ 14.20 $ 12.44 $ 11.63
-------- -------- ------- ----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss......... 0.982 1.04 1.07 1.18
Net Realized and Unrealized
Gain/Loss........................ (2.497) (0.65) 2.35 0.72
-------- -------- ------- ----------------
Total From Investment Operations... (1.515) 0.39 3.42 1.90
-------- -------- ------- ----------------
DISTRIBUTIONS
Net Investment Income.............. (1.012) (1.00) (1.15) (1.09)
Net Realized Gain.................. -- (1.19) (0.51) --
In Excess of Net Realized Gain..... (0.006) -- -- --
-------- -------- ------- ----------------
Total Distributions................ (1.018) (2.19) (1.66) (1.09)
-------- -------- ------- ----------------
NET ASSET VALUE, END OF PERIOD....... $ 9.863 $ 12.40 $ 14.20 $ 12.44
======== ======== ======= ================
TOTAL RETURN (1)..................... (11.82)% 2.63% 29.14% 17.07%*
======== ======== ======= ================
RATIOS AND SUPPLEMENTAL DATA
Net assets, End of Period (000's).... $107,013 $146,401 $78,340 $ 26,174
Ratio of Expenses to Average Net
Assets............................. 2.20% 2.20% 2.27% 2.30%
Ratio of Net Investment Income/Loss
to Average Net Assets.............. 9.81% 7.64% 8.86% 12.06%
Portfolio Turnover Rate.............. 121% 156% 157% 220%*
- -------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income/Loss...................... $ -- $ -- $ -- $ 0.02
Ratios Before Expense Limitation:
Expenses to Average Net Assets..... -- -- -- 2.47%
Net Investment Income/Loss to
Average Net Assets............... -- -- -- 11.89%
- ------------------------------------------------------------------------------------------------- --------------------------------
- ----------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------
YEAR ENDED JUNE 30,
-------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1999# 1998# 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $12.403 $ 14.21 $ 12.45 $ 11.58 $ 12.16
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss......... 0.982 1.04 1.16 1.30 1.17
Net Realized and Unrealized
Gain/Loss........................ (2.500) (0.66) 2.26 0.77 (0.50)
------- ------- ------- ------- -------
Total From Investment Operations... (1.518) 0.38 3.42 2.07 0.67
------- ------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income.............. (1.012) (1.00) (1.15) (1.20) (1.13)
Net Realized Gain.................. -- (1.19) (0.51) -- (0.12)
In Excess of Net Realized Gain..... (0.006) -- -- -- --
------- ------- ------- ------- -------
Total Distributions................ (1.018) (2.19) (1.66) (1.20) (1.25)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD....... $ 9.867 $ 12.40 $ 14.21 $ 12.45 $ 11.58
======= ======= ======= ======= =======
TOTAL RETURN (1)..................... (11.83)% 2.55% 29.12% 18.71% 6.20%
======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net assets, End of Period (000's).... $40,616 $60,197 $41,709 $28,094 $11,880
Ratio of Expenses to Average Net
Assets............................. 2.20% 2.20% 2.27% 2.30% 2.30%
Ratio of Net Investment Income to
Average Net Assets................. 9.81% 7.62% 9.04% 11.40% 10.72%
Portfolio Turnover Rate.............. 121% 156% 157% 220% 178%
- -------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income/Loss...................... $ -- $ -- $ -- $ 0.04 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets..... -- -- -- 2.44% 2.74%
Net Investment Income/Loss to
Average Net Assets............... -- -- -- 11.26% 10.28%
</TABLE>
- --------------------------------------------------------------------------------
* Non-Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred
sales charges.
# Changes per share are based upon monthly average shares outstanding.
The accompanying notes are an integral part of the financial statements.
F-161
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Van Kampen Worldwide High Income Fund (the "Fund") is organized as a
separate non-diversified fund of Van Kampen Series Fund, Inc., a Maryland
Corporation, which is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund's investment
objective seeks to offer investors high current income consistent with relative
stability of principal and potential for capital appreciation. The Fund
commenced operations on April 21, 1994.
The Fund currently offers three classes of shares, Class A, Class B, and
Class C Shares. Class A shares are sold with a front-end sales charge of up to
4.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge of 1.00% imposed in the event
of certain redemptions within one year of the purchase. Class B and Class C
shares are offered without a front end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"). Class B shares will automatically
convert to Class A shares after the eighth year following purchase. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------ -------- --------
<S> <C> <C>
First............................. 4.00% 1.00%
Second............................ 4.00% None
Third............................. 3.00% None
Fourth............................ 2.50% None
Fifth............................. 1.50% None
Thereafter........................ None None
</TABLE>
All three classes of shares have identical voting, dividend, liquidation and
other rights. The Fund began offering the current Class B shares on August 1,
1995. Class B shares held prior to May 1, 1995 were renamed Class C shares.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the current bid and asked prices obtained from reputable
brokers. Bonds and other fixed income securities may be valued according to the
broadest and most representative market. In addition, bonds and other fixed
income securities may be valued on the basis of prices provided by a pricing
service which takes into account institutional size trading in similar groups of
securities. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. All other
securities and assets for which market values are not readily available are
valued at fair value as determined in good faith by the Board of Directors,
although the actual calculations may be done by others.
At June 30, 1999, approximately 86% of the net assets of the Worldwide High
Income Fund consisted of high yield securities rated below investment grade.
Investments in high yield securities are accompanied by a greater degree of
credit risk and the risk tends to be more sensitive to economic conditions than
higher rated securities. Certain securities may be valued on the basis of bid
prices provided by one principal market maker.
2. SECURITY TRANSACTIONS: Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
3. INCOME AND EXPENSES: Dividend income is recorded on the ex-dividend date.
Interest income is recognized on the accrual basis except where collection is in
doubt. Discounts and premiums on securities purchased are amortized according to
the effective yield method over their respective lives. Income, expenses (other
than class specific expenses), and realized and unrealized gains or losses are
allocated to each class of shares based upon their relative net assets.
Distributions from the Fund are recorded on the ex-distribution date.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are
F-162
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
translated into U.S. dollars at the mean of the quoted bid and asked prices.
Purchases and sales of portfolio securities are translated at the rate of
exchange prevailing when such securities were purchased or sold. Income and
expenses are translated at rates prevailing when accrued. Realized and
unrealized gains and losses on securities are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and losses on foreign currency includes the net
realized amount from the sale of the currency and the amount realized between
trade date and settlement date on security and income transactions. However, the
foreign currency portion of gains and losses realized on sales and maturities of
foreign denominated debt securities is treated as ordinary income for U.S.
Federal income tax purposes.
The net assets of the Fund may include issuers located in emerging markets.
There are certain risks inherent in these investments not typically associated
with investments in the United States, including the smaller size of the markets
themselves, lesser liquidity, greater volatility and potentially less publicly
available information. Emerging markets may be subject to a greater degree of
government involvement in the economy and greater economic and political
uncertainty, which has the potential to extend to government imposed
restrictions on exchange traded transactions and currency transactions. These
restrictions may impact the Fund's ability to buy or sell certain securities or
to repatriate certain currencies to U.S. dollars. Additionally, changes in
currency exchange rates will affect the value of and investment income from such
securities.
5. TAXES: It is the Fund's intention to qualify as a regulated investment
company and distribute substantially all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such
taxes are generally based on income earned or gains realized or repatriated.
Taxes are accrued and applied to net investment income, net realized capital
gains and net unrealized appreciation, as applicable, as the income is earned or
capital gains are recorded.
At June 30, 1999, cost and unrealized appreciation/ depreciation for U.S.
Federal income tax purposes of the investments of the Fund was:
<TABLE>
<CAPTION>
NET
APPRECIATION/
COST APPREC. DEPREC. DEPRECIATION
(000) (000) (000) (000)
----- ------- ------- -------------
<S> <C> <C> <C>
$212,269 $8,059 $(18,760) $(10,701)
</TABLE>
6. DISTRIBUTIONS OF INCOME AND GAINS: The amount and the character of income and
capital gain distributions to be paid by the Fund are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing book and
tax treatment for foreign currency transactions, net operating losses, foreign
taxes on net realized gains, and gains on certain securities of corporations
designated as "passive foreign investment companies."
Permanent book to tax basis differences relating to shareholder distributions
may result in reclassification among accumulated net investment income/loss,
accumulated net realized gain/loss, and paid in capital in excess of par. For
the year ended June 30, 1999, approximately $297,000 has been reclassified from
accumulated net realized loss and approximately $4,000 has been reclassified
from paid in capital in excess of par totaling $301,000 posted to accumulated
net investment income.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
B. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.), Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser") and Miller Anderson & Sherrerd LLP, wholly
owned subsidiaries of Morgan Stanley Dean Witter & Co., provide the Fund with
investment advisory services at a fee paid monthly and calculated at the annual
rates based on average daily net assets as indicated below. The Adviser has
agreed to reduce advisory fees payable to it and to reimburse the Fund, if
necessary, if the annual operating expenses, as defined, expressed as a
percentage of average daily net assets, exceed the maximum ratios indicated as
follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- ------------ -------------- --------------
<S> <C> <C>
0.75% 1.55% 2.30%
</TABLE>
For the year ended June 30, 1999, the Fund recognized expenses of approximately
$12,000 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides the
Fund with administrative services pursuant to an administrative agreement for a
monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the portfolio, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
F-163
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
Van Kampen Funds Inc. the ("Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B shares and Class C shares of the Fund on
an annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the year ended
June 30, 1999, the Distributor has advised the Fund that it earned initial sales
charges of $308,371 for Class A shares and deferred sales charges of $6,501,
$610,632, and $24,589 for Class A shares, Class B shares, and Class C shares,
respectively.
Prior to October 1, 1998, the Fund's assets held outside the United States were
held by Morgan Stanley Trust Company ("MSTC"), a former affiliate of the
Subadvisers. Through September 30, 1998, the Fund incurred MSTC fees of
approximately $7,000. On October 1, 1998, the Chase Manhattan Bank purchased
MSTC.
Certain officers and directors of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its directors
who are not officers of Van Kampen. Under the deferred compensation plan,
Directors may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each Director's years of service to the Fund. The maximum annual
benefit per director under the plan is $2,500.
C. INVESTMENT TRANSACTIONS: For the year ended June 30, 1999, the Fund made
purchases of approximately $267,604,000 and sales of approximately $287,663,000
of investment securities other than long-term U.S. government securities and
short-term investments. There were no purchases or sales of long-term U.S.
government securities.
D. DERIVATIVE FINANCIAL INSTRUMENTS: A derivative financial instrument in very
general terms refers to a security whose value is "derived" from the value of an
underlying asset, reference rate or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, foreign currency
exposure, maturity and duration. All of the Fund's portfolio holdings, including
derivative instruments, are marked-to-market each day with the change in value
reflected in unrealized appreciation/depreciation. Upon disposition, a realized
gain or loss is recognized accordingly, except when exercising a call option
contract or taking delivery of a security underlying a forward contract. In this
instance, the recognition of gain or loss is postponed until the disposal of the
security underlying the option or forward contract. Risks may arise as a result
of the potential inability of the counterparties to meet the terms of their
contracts.
Summarized below are the specific types of derivative financial instruments used
by the Fund.
1. FORWARD CURRENCY CONTRACTS: These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on foreign currency transactions.
At June 30, 1999, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
VALUE DEPRECIATION
FORWARD CURRENCY CONTRACTS (000) (000)
- -------------------------- ------- -------------
<S> <C> <C>
SHORT CONTRACTS:
British Pound,
2,005,000 expiring 9/3/99............. $ 3,165 $ 66
Euro,
9,215,000 expiring 7/26/99-8/20/99.... 9,536 205
------- ----
$12,701 $271
======= ====
</TABLE>
2. FUTURES CONTRACTS: A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures of foreign government bonds and typically
closes the contract prior to the delivery date. These contracts are generally
used to manage the portfolio's effective maturity and duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash or securities with a value equal to its
obligation under the futures contracts. During the period the futures contract
is open, payments are received from or made to the broker based upon changes in
the value of the contract (the variation margin). The potential risk of loss
associated with a futures contract could be in excess of the variation margin
reflected on the Statement of Assets and Liabilities. The cost of securities
acquired through delivery under a contract is adjusted by the unrealized gain or
loss on the contract.
F-164
<PAGE>
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONT.)
- --------------------------------------------------------------------------------
JUNE 30, 1999
Transactions in futures contracts for the year ended June 30, 1999, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS
- ------------------------------------------------------
<S> <C>
Outstanding at June 30, 1998............... -0-
Futures Opened............................. 69
Futures Closed............................. (56)
---
Outstanding at June 30, 1999............... 13
===
</TABLE>
The futures contracts outstanding as of June 30, 1999, and the descriptions and
the unrealized appreciation/ depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
DEPRECIATION
CONTRACTS (000)
<S> <C> <C>
- ------------------------------------------------------------------
SHORT CONTRACTS:
U.K. Long Gilt September 1999
(Current notional value
$2,329,331).......................... 13 $33
== ===
</TABLE>
F-165
